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UK investors face fresh PE takeover threat

Fund manager says three holdings in particular are at risk from buyouts given the low valuations seen in London
May 13, 2022
  • Fund manager warns that UK companies look vulnerable to private equity bids
  • Currency woes and share price falls all play a role

The recent share price rout and sterling weakness leaves UK companies more vulnerable to takeover bids from private equity, the manager of the SDL UK Buffettology Fund (GB00BF0LDZ31) has warned.

Keith Ashworth-Lord has seen investors mull bids for two companies held by the £1.2bn fund in recent weeks. RWS (RWS) announced in April that the Baring Private Equity Asia Fund VIII was weighing up a takeover bid, while Homeserve (HSV) has been in talks with North American outfit Brookfield Infrastructure after receiving “a number of proposals” from the firm.

Ashworth-Lord warned that while much of his portfolio had held up well operationally amid recent uncertainty, steep share price falls and the recent weakness of sterling versus the US dollar could see them taken off the market. The pound has been trading at its lowest levels since early 2020.

“We are seeing the companies are doing fine,” he said. “The thing that has caused pain is simple derating and multiple compression. It’s a worry, then, that private equity is coming in and snapping them up.”

He added that three other companies backed by the team, NCC (NCC), RM (RM.) and PayPoint (PAY), looked most vulnerable to possible bids on the back of share price weakness.

“They’re the three that look like ducks with guns pointed at them,” he said. “I fear they end up in a P2P (public to private) trade and we get cheated out of our ownership. I think these things could have doubled their share price in two or three years. It’s going to get stolen off me.”

UK companies have already seen private equity firms turn acquisitive in the last year or so, while signs have already emerged of that continuing into 2022. Activity in the listed Reit space has raised eyebrows, for one.