UK companies are seen as particularly vulnerable to takeover from international buyers this year, according to FTSE bosses and investors, as optimism around M&A in the City picks up.
UK Plc will be a target for international companies and private equity firms this year, according to a survey of 200 FTSE 350 board members and 200 institutional investors by Deutsche Numis.
International buyers have long seen UK corporates as an attractive acquisition, particularly in the wake of the Brexit vote as their valuations declined. However, the slump in deals over the past 18 months has seen such activity fizzle out, even after private equity firms spent £80bn taking UK public companies private over the five years to the end of 2022.
In Deutsche Numis’s annual survey of FTSE bosses, 89% believe UK Plc is vulnerable to takeovers, with 61% saying that international corporate buyers would be at the forefront of the buying spree.
“In 2023, acquisitions of such targets were constrained by a significant valuation gap between buyers and sellers, but we have seen recent indications of a reduction in this bid-offer spread,” said Oliver Ives, co-head of UK M&A Deutsche Numis.
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“The survey shows that UK Plcs feel vulnerable to takeover and there is an expectation that international corporates will be leading the charge,” he added. “The UK takeover regime is a well-trodden path for international corporates, especially those from the US which are often able to benefit from one or more of favourable exchange rates, valuation arbitrage and scale.”
Despite the dearth of UK M&A deals, investment banks have been bolstering their businesses in the country. Deutsche’s £410m acquisition of Numis in April followed a significant hiring spree at the German lender for its UK dealmaking team. UBS brought in most of Credit Suisse’s UK deals team after its shotgun marriage in March, while BNP Paribas has also been eyeing more market share.
Meanwhile, City brokers have come together in a bid to gain scale to survive. Panmure Gordon and Liberum unveiled a tie-up on 16 January, claiming to be a new force in UK investment banking.
Bank executives believe that the worst of the slump is now over. FTSE 350 bosses and institutional investors share this optimism on M&A deals. Of those responding to the Deutsche Numis survey, 88% see a more positive outlook for M&A this year, with the majority of UK corporates also expected to do larger deals.
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