The value of mergers and acquisitions (M&As) involving UK companies has hit $306.3bn so far in 2024, a 57% increase over the same period last year, according to data from Dealogic. In comparison, the value of total M&A activity in Germany, France and Italy came in at $143.2bn, $142.3bn and $91bn respectively, underscoring the UK’s position as the most active dealmaking hub in Europe this year.
Among the significant megadeals of 2024 are the £7.8bn merger of International Paper and DS Smith, Swisscom’s £6.8 billion acquisition of Vodafone, and Carlsberg’s £4.1bn acquisition of Britvic.
Other deals that grabbed headlines include a £1.32 billion bid by Toronto-based manufacturer ABC Technologies to acquire UK car parts maker TI Fluid systems, a £701mn bid by Macquarie for waste-management group Renewi, and a £351mn purchase of pub and restaurant chain Loungers by Abu Dhabi-backed Fortress Investment Group.
The upsurge in deal activity on the back of a lacklustre 2023 is a much welcome boon for London-based advisory firms. For instance, boutique advisory group Robey Warshaw in November reported record revenues and profits for its latest financial year thanks to the recovery in dealmaking. It reported record turnover of £86mn for the period, nearly double the previous year, while operating profits more than doubled to £69.5mn.
Discounted Valuations Draw Investors
Analysts credit the uptick in M&As in the UK to the attractive valuations in the market relative to the US and other developed markets. UK equities and assets have consistently underperformed the US and other developed markets for the past decade. This trend has been influenced by various factors, including economic policies, market dynamics, and geopolitical events such as Brexit.
Kirshlen Moodley, UK head of advisory at BNP Paribas, noted: “We’re certainly going to see a lot more activity because there’s a rebalanced market that now takes into account current interest rates and where valuation levels are.”
“The UK is selectively strong . . . definitely the market is much more robust versus the same period last year at this time,” he added, highlighting that share valuations have long been considerably lower than in the US. “It will always be an attractive market because it trades at that structural discount to US peers.”
Indeed, a large portion of the M&As in the UK were made possible by a cash influx from overseas, with US bidders accounting for 37% of total deal value in Q3. According to Datasite, American acquirers “see tremendous value in this market, benefiting from relatively lower-entry multiples for quality assets.”
Investors Overlook Tax Hikes
Prime Minister Keir Stammer’s aggressive push to plug a £40bn gap in public finances through significant tax hikes has failed to dampen the mood for investors. Businesses, however, have expressed concerns over some of the proposals that Stammer has put forward in Labour’s first post-election Budget.
The Confederation of British Industry (CBI) lobby group reported in November that almost half of the businesses in a recent survey were reducing headcount after the Budget, which has saddled the private sector with the lion’s share of the tax increases. Nevertheless, for investors, the generally more stable environment in the UK is a key strength that outweighs the near-term concerns surrounding tax hikes.
Iain Fenn, a partner at Linklaters, said that, despite concerns over tax rises, “people generally see a more stable environment in the UK”, the Financial Times reported.
“Last year was terrible. There were lots of people looking at deals but we couldn’t execute anything,” Fenn said. “This year you’ve seen steadily rising confidence through the year.”
Private Equity Optimistic About New Year
The resurgence in UK dealmaking is expected to continue well into 2025, with an overwhelming majority of private equity firms expecting an increase in deals during the new year. According to a Deutsche Numis survey among private equity firms published in November, 84% of respondents of a survey expect to execute at least 5 to 10 deals in 2025. In contrast, only 12% of the private equity firms surveyed last year said they were “highly likely” to execute acquisitions.
Deutsche Numis polled 200 senior private equity professionals, who said they expect a significantly increased interest in public-to-private deals in the UK, with 26% of respondents viewing public assets as the main pipeline focus, versus 14% in 2023.
The survey notes that falling interest rates are making financing easier for buyouts, fuelling renewed optimism among dealmakers.
“Private equity investors are expecting M&A to be busier next year, supported by ongoing improvements in financing markets,” said Alec Pratt, co-head of EMEA financial sponsors M&A at Deutsche Bank.
IPO Drought Persists
While private equity companies are eager to pursue deals in the UK– including taking public companies private – there remains a notable lack of enthusiasm for Initial Public Offerings (IPOs). This reflects a broader trend which has taken hold over the past decade, as companies that would have otherwise gone public on the London Stock Exchange (LSE) turn to more vibrant markets like the US where they are likely to raise more cash.
Source: Bloomberg and Dealogic
A decade ago, London ranked as the world’s third busiest exchange for IPOs, trailing only New York and China, according to Dealogic’s figures. Today it has plummeted to 18th spot in Dealogic’s rankings.
Companies floating in London have raised just $1bn (£790m) this year – a 95 decline from last year , according to data compiled by Bloomberg. Whether London’s bourse, once among the world’s most prestigious, can regain its former glory in 2025 amid a projected increase in UK dealmaking remains to be seen. Market sentiment seems to suggest it will be more of the same moving into the new year.
Steven Fine, chief executive of stockbroker Peel Hunt, said London markets were “in the embryonic stages” of a rebound in corporate dealmaking. “[M&A] is not going away.” However, Fine cautioned the outlook for IPOs remained bleak, saying the likelihood of a surge in London listings was “limited”, as consistent outflows from UK equities were “draining away support and causing valuations to stay low”. M&A is “great, but you’re losing companies”, he said, estimating that 100 London-listed groups will either have been bid for, delisted or taken over by the end of 2024.
Author: Acutel
We are global investors who invest in good companies at fair valuation and speculate on all else subject to the risk exposure we can afford.
The editorial team at #DisruptionBanking has taken all precautions to ensure that no persons or organisations have been adversely affected or offered any sort of financial advice in this article. This article is most definitely not financial advice.
