Why you should expect more UK takeovers in 2025
The UK is structurally undervalued and that UK-listed companies are ‘always for sale’, says one City broker. Here’s why there’ll be more of the same in the year ahead.
19th December 2024 15:15
by Graeme Evans from interactive investor
A wave of takeover activity has been forecast for 2025 as strategic and private equity buyers seek out more targets in the “structurally undervalued” UK market.
Approaches during 2024 came at an increased rate, with one in 20 of all UK listed companies coming under public offer and the value of “big-ticket” approaches at a post-Covid high.
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Completed deals have included Virgin Money, Darktrace, Centamin and Redrow, while Direct Line Insurance Group (LSE:DLG) and Royal Mail owner International Distribution Services (LSE:IDS) are among those ongoing.
Anglo American (LSE:AAL) provided the highest-profile takeover action of 2024 after it resisted a £41 billion bid by BHP Group Ltd (LSE:BHP). Rightmove (LSE:RMV) and Currys (LSE:CURY) also fended off interest during the year.
In its report Barbarians at the Gate, investment bank Peel Hunt said today that based on current trends “it seems that 2025 will bring a major and sustained flow of UK takeovers”.
It said that a persistent sense that the UK is structurally undervalued and that UK-listed companies are “always for sale” has underpinned the M&A environment in recent years.
With UK and US election uncertainty out of the way and acquisition financing still available despite the slow pace of interest rate cuts, the bank said that buyers are ready to make investment decisions - and major ones at that.
On the supply side, the well-documented headwinds facing UK equity markets highlight the potential vulnerability of UK listed companies to a global audience.
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In addition to unsolicited approaches from potential bidders, boards are also seeking to explore their own strategic options and assess the feasibility of a sale process.
Peel Hunt said: “For smaller companies, low share liquidity, a share price that barely responds to positive news (but overreacts to negative news), and a perceived structural dislocation of the share price from fundamental value all call into question the merits of being listed.
“The exodus of capital from UK equity funds and the reduction of tax incentives to invest in AIM only serves to whip up the headwinds facing the UK small and mid-cap segment.”
The report speculates that almost one-third of AIM-listed businesses with a market capitalisation of between £50 million and £250 million are vulnerable to acquisition.
Across the UK market in 2024, industrials, real estate and technology, media and telecoms were the most active takeover sectors.
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Large deal volumes were at the forefront of M&A activity, with an aggregated firm offer value of £50 billion up from £19 billion in 2023 and £41 billion in 2022.
Those worth over £1 billion accounted for almost one-third of all deals in 2024, up from 7% in 2023 and the highest proportion since 2021.
Hostile takeovers were a step too far for nearly all bidders, although the return of the “bear hug” saw some go directly to shareholders in order to put pressure on target boards.
Many institutions showed their willingness to stop assets being sold “on the cheap”, whereas other shareholders welcomed the cash inflows from takeovers to fund their own liquidity requirements or to redeploy the capital into higher-quality investments.
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