There has been a record value of takeovers and other deals of UK companies so far in 2021 and analysts say there is plenty more to come. The first half of the year has seen 124 takeovers and purchases of minority stakes by private equity companies, according to data from Dealogic, totally GBP41.5bn in value. This is the highest value since the data company started tracking deals in 2005.
For London-listed companies, there have been 21 announced and possible bids, with an equity value of GBP24.4bn, according to broker Peel Hunt. These bids included one FTSE 100 company, eight in the FTSE 250, four FTSE SmallCap and eight AIM-listed companies, the broker noted, with six deals in the financial sector, four in healthcare, three in support services and two each in real estate and industrials, as well as single deals in retail, industrials, leisure, mining and technology. Peel Hunt noted 16 private equity and other financial buyers, plus five industry buyers all from overseas.
The pace is accelerating in May and June, analysts added, after a steady pace at the start of the year. "In our view this is not surprising, given the deep pockets of private equity, combined with improving market dynamics and the relatively low valuations of UK assets," wrote Peel Hunt head of research Charles Hall. "The scale of cash returning to investors should help equity markets as investors look to reallocate funds."
With a large part of Brexit uncertainty resolved and the roll-out of one of the fastest Covid-19 vaccination programmes in the developed world, Hall said investors might have expected an even better performance from UK assets during the half year. But the improvement actually resulted in boosting the pound, which presented a headwind for the overseas earners that dominate the FTSE 100, he said, with the picture brighter further down the market cap scale in the FTSE 250 and small cap spaces. "M&A activity has been an important contributor to that outperformance."
As the June BofA fund manager survey showed, global investors are increasingly positive towards the UK market, with the highest rating since March 2014 - though this reading remains below that for the US, and a long way below the consensus bullishness about Eurozone equities. "Hence the UK's valuation discount vs the other major markets has shown no sign of narrowing so far in in CY21E," Hall said, with a 12-month forward PE putting the UK at around 40% cheaper than the US market and 25% cheaper than the Eurozone. Of course, such comparisons can be distorted by different sector exposures; and 12-month forward estimates remain unreliable at present, he added.
Peel Hunt suggested several companies that might be takeover targets, including Greencore, Headlam, Intermediate Capital Group, Arrow Global, OneSavings Bank, Secure Trust Bank, Provident Financial Group, Clinigen, ConvaTec, CVS, Ergomed, Medica Group, and the brokerages clients genedrive, Premier Foods, MP Evans, Treatt, Oxford BioMedica, Sensyne Health, Charles Stanley, Brooks Macdonald and Paragon.