- 'Heightened' pace of LSE buyouts has continued in 2024, says Peel Hunt
- Cash offers made at an average premium of 55 per cent
A dozen bids of at least £100mn were made for UK-listed companies in the first quarter, with the “relentless” pace of de-equitisation likely to continue given low valuations, according to Peel Hunt.
Although the number of bids was lower than the 17 made in the final quarter of 2023, the size of the companies being targeted was much higher, with the combined equity value of offers topping £16.8bn, the broker’s head of research, Charles Hall said.
The biggest bids made in the quarter are the £5.7bn offer made for DS Smith (SMDS) by International Paper (US:IP), the £2.9bn approach by Nationwide Building Society for Virgin Money (VMUK) and the £2.5bn buyout of Redrow (RDW) proposed by Barratt Developments (BDEV).
Hall argued that the “underlying issue” behind the bidding activity is the continued outflow of funds from UK markets, which has lasted for 34 months in a row. This has depressed valuations, making listed companies a target and leaving management teams “questioning the rationale for being quoted”, he added.
The lack of new entrants into the market means the FTSE Smallcap index (of companies below the FTSE 350) continues to shrink. It has fallen from 160 at the end of 2018 to 114 at the end of last year. “Based on the current bids proceeding, this will reduce to only 100,” Hall said.
Bidders may be looking to time the market, with Goldman Sachs analysts last month stating they expected smaller and mid-cap UK firms to outperform this year. The appreciation of the pound will benefit companies with a domestic focus, while purchasing managers’ index surveys highlight expectations of an uplift in activity in the services sector, they added.
The buyout rush is partly benefitting Peel Hunt itself. The broker reported sales of £85.5mn for the 12 months ending 31 March, a 4 per cent increase on the previous year. "The overall increase in revenues was driven largely by investment banking, with M&A revenues in particular accounting for a large proportion of investment banking deal fees," Peel Hunt said. The company has guided another full year loss, with the consensus forecast for a net loss of £2.3mn, up from £1.3mn in the 2023 financial year.
