Bargain hunt: How many firms were plucked from London’s markets last year?

The pain may be yet to come for the London Stock Exchange as analysts today predicted another wave of take-private deals in the coming months.

In a note to investors this morning, investment bank Peel Hunt said the capital could be set for a “relentless” exodus of investors and firms if the government and regulators did not act fast and start boosting the appeal of the market.

Last night Tui announced that it would be looking to delist from London, focussing on a primary listing in Frankfurt.

But even with warnings of approaching gloom, London is already nursing heavy losses from last year when cashed-up buyers made the most of the malaise to pick up bargains.

While a predicted take-private frenzy took longer than many expected, the dealmaking got into full swing by the second half of the year and high-profile names like Hotel Chocolat and The Restaurant Group were scooped into private hands.

April ushered in the two biggest deals of the year as veterinary drugmaker Dechra struck a £4.5bn deal with Swedish private equity house EQT, followed by the £2.2bn buy-out of payments giant Network International by CVS and Francisco partner.

In total, 38 firms either completed deals or waived them through. The number of companies listed on the London Stock Exchange has now cratered to around 1,900 from over 3,250 in 2008.

“There has been a torrent of takeovers in 2023, which has been driven by low valuations ascribed to UK companies,” said Charles Hall, chief analyst at Peel Hunt. “This has resulted in strong appetite from both financial and corporate buyers.”

Some 60 per cent of the acquisitions have also been from overseas buyers as corporates and investors make the most of sluggish valuations in the Capital.

For some, the deals bonanza did not take off to the degree first feared. US corporates and buyout groups looked to be well and truly on the hunt at the end of 2022 after picking up firms including Ted Baker and Go-Ahead.

Lofty interest rates ramped up the cost of financing for dealmakers and dampened the potential scale of the interest. But the failure to take off was not always through lack of trying. Some of the biggest bids of the year fell apart on the chasm between seller and buyer price expectations. THG, the now-owner of City A.M., and energy services firm Wood Group repeatedly rejected a series of bumper bids from buyout group Apollo on price grounds, saying they undervalued the firms.

Others have been happy to shake hands as buyers launch bids well above the value on the value prescribed by investors on the London Stock Exchange. Hotel Chocolat for instance had been valued at just £191m at the time of Mars’ successful £534m bid.

As rates and markets appear to be settling, lawyers and deals advisors are now gearing up for a busy 2024 as private buyers look again to be on the pitch for deals.

“Looking ahead to 2024, we expect private equity sponsors to continue to have a substantial showing in the public markets as stored up dry-powder, low valuations and share price underperformance continue to fuel the appetite for deals,” said Laura Ackroyd, a corporate lawyer at Herbert Smith Freehills.  

“Management teams are also still attracted to the greater freedoms offered under private ownership.”

Ackroyd says that eyes in the City will be on technical reforms being ushered in by the Financial Conduct Authority and whether they can make London’s markets a more pleasant place to be once again.

Without that boost in appeal, however, London may be set to see a slew of new firms pass over to the other side next year.

This article was updated on 3rd January to include the latest predictions of Peel Hunt.