London Stock Exchange takeover bonanza tops £50bn

The barrage of takeover bids for firms listed on the London Stock Exchange this year has jumped to £52bn in value, fuelling fears over the health of the City’s equity markets.

A total of 45 London-listed firms have been approached, agreed to, or completed acquisitions since January, according to data provided to City AM by investment bank Peel Hunt.

Charles Hall, head of research at Peel Hunt, said the level of takeover activity among FTSE 350 businesses was “unprecedented”, with 21 bids this year.

The biggest deal is the planned £5.7bn merger of UK cardboard box giant DS Smith and US rival International Paper, followed by investment platform Hargreaves Lansdown’s £5.4bn sale to a group of private equity buyers.

Other multibillion-pound deals include US private equity firm Thoma Bravo’s £4.3bn takeover of cybersecurity company Darktrace, Czech billionaire Daniel Kretinsky’s planned £3.6bn swoop for Royal Mail owner IDS, and Nationwide’s £2.8bn purchase of Virgin Money.

Takeover bids by value (£bn)

There have been three takeover approaches for London Stock Exchange-listed firms in the last three days alone: Direct Line rejected a £3.3bn proposal from rival insurer Aviva, Australian asset management giant Macquarie made an $887m offer for FTSE 250 waste disposal company, Renewi, and Cosy Club owner Loungers waved through a £338m bid from US investment firm Fortress.

London’s exodus has struck a blow to British regulators and the government, which have scrambled to inject more life into capital markets by streamlining the cumbersome rulebook for listed companies.

The capital’s flagship bourse is on track to register its lowest levels of floats on record this year, with just 14 debuts across its two markets.

Analysts have pinned the sharp rise in takeover attempts, involving mostly overseas bidders, on the relatively cheap valuations of London-listed companies compared to their international counterparts. This issue has also driven a string of big names to move their listings overseas in recent years.

Peel Hunt’s data shows that takeovers of London Stock Exchange listed companies have come in at an initial average premium of 40 per cent to their last share price before the offer period, with the number at 45 per cent when counting offers that were later updated.

“The scale of activity and level of premium show how many good quality companies there are in the UK as well as how undervalued they are,” Hall said.

“This further reinforces the need for fundamental reform to stimulate investor demand in the UK market. If this doesn’t happen in the near future, there will undoubtedly be many more companies leaving the London market in 2025.”

Dan Coatsworth, investment analyst at AJ Bell, said M&A activity is “red hot” as listed companies seek to generate an uplift for shareholders.

“So many UK-listed companies are being taken over because the market didn’t spot the value on offer,” he added.

Among the biggest premiums this year was the takeover of FTSE 250 telecoms firm Spirent Communications, which struck a £1.2bn deal with US electronic equipment maker Keysight at a premium of 86 per cent.

Video game developer Keywords Studios was taken private by private equity firm EQT for £2bn at a 67 per cent premium, while Hargreaves Lansdown is set to be snapped up by a private equity consortium at a 54 per cent premium.

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