First it was Wincanton, then Currys and now Direct Line. Companies at the heart of the UK economy are being preyed on by foreign suitors – and it could be just the start.
As global dealmaking comes back with a bang after a long hiatus, private equity barons and cash-rich corporations see listed British businesses as a bargain.
And some observers fear the worst. ‘The situation is looking structural and terminal for UK mid-cap businesses,’ said Richard Bernstein, boss of activist investor Crystal Amber.
‘This is very serious. They are just being picked off one by one.’
The signs were already there.
Easy prey: A poll by broker Deutsche Numis found the majority of FTSE board 350 members surveyed said they were at greater risk of being acquired by overseas buyers this year
Charles Hall, head of research at investment bank Peel Hunt, said: ‘A hollowing out of mid-cap UK listed firms is happening.
‘At the current pace of departures, the FTSE Smallcap index will cease to exist in 2028.’
A poll last month by broker Deutsche Numis found that the majority of FTSE board 350 members surveyed said they were at greater risk of being acquired by overseas buyers this year.
And a report from Peel Hunt found that with global boardroom confidence about the future recovering, the case for bulking up through deals has strengthened.
In particular, it pointed to a ‘recovery of inbound bid interest from North American corporates in their lower-valued UK peers’.
Simon French, chief economist at Panmure Gordon, said that UK-listed company valuations were at 30-year lows.
In short, hungry foreign buyers have alighted on a cheap way to satisfy their appetites.
But what is behind the bargain basement price tags?
French points out that pension funds or retail investors who might in the past have been the ‘natural buyer’ of UK equities now ‘just want more Nvidia’ – referring to the US chip firm which is enjoying stellar growth thanks to the rise of artificial intelligence (AI).
City fund managers are facing pressure as clients pull out their money to turn into cash – so are piling into America’s fast-growing tech stars rather than the mid-range workhorses of the British economy.
‘These solid, unloved companies fail to attract financial capital but – more worrisome – the most talented staff,’ says Bernstein.
It leaves companies such as Wincanton as well as banknote printer De La Rue, in which Bernstein’s Crystal Amber is the largest shareholder, as ‘sitting ducks’, he argues.
Bernstein’s solution would be for the UK to set up a sovereign wealth fund along the lines of those in Norway and Singapore, to shore up the market.
He thinks urgent action is needed.
Target: Currys has surged more than 40% amid two rejected bids from American hedge fund Elliott and an expression of interest from Chinese online retail giant JD.com
‘In the old days you’d get some serious people in a room, saying: ‘What are the issues, let’s plan this out and report back in six weeks’ and make a decision.
‘There isn’t the urgency. I’m sure in a month, three or four more UK companies will have bid interest.’
Foreign bids may cheer investors in the short term as they cash in on their stakes at premium valuations – but they will come at a cost, Bernstein said, with jobs lost should new owners decide staff are ‘surplus to requirements’.
Logistics firm Wincanton has seen its share value double since it agreed a takeover by France’s CMA CGM last month, only for a rival US bidder GXO to submit a much higher £762million offer yesterday.
Currys rose more than 40 per cent amid two rejected bids from American hedge fund Elliott and an expression of interest from Chinese online retail giant JD.com.
And insurer Direct Line’s value surged by a fifth as details of an offer, which it rejected, from Belgian rival Ageas emerged this week.
Now, City analysts will be speculating about who might be next.
Last month, research published by Quest, an arm of investment bank Canaccord Genuity reportedly suggested that the likes of British Gas owner Centrica, North Sea oil and gas firm Harbour Energy, and Easyjet could be targets.
Peel Hunt experts said, in the wake of the recent Currys offer, that fellow retailers including DFS, Halfords and even Marks & Spencer were trading on low valuations.
Some UK companies have not been content to wait for foreign bidders to come in to lift valuations: travel giant Tui and drug maker Indivior are moving their main listings to Frankfurt and New York respectively.
That is despite much soul-searching and City reforms designed to halt the exodus.
A further consequence of low valuations is a dearth of stock market flotations in London – a noticeable trend even during a relatively fallow period globally, with only around £800million raised in initial public offerings (IPOs) last year.
David Schwimmer, chief executive of the London Stock Exchange Group, which now makes much more money through its data business than from the running of the exchange, denies complacency, claiming London is seeing an ‘encouraging IPO pipeline’, with an increase in activity expected this year.
He told reporters: ‘Of course we’d like to see companies listing here in London and remaining listed here in London, and all of the different issues we are working through are intended to address any questions and concerns around that.
‘We feel like we’re making good progress and I would say that the pipeline that I referred to would indicate there is progress happening there.’
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