Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The UK’s Takeover Panel has become an unexpected casualty of the dealmaking drought, reporting its first deficit in almost a decade.
The City of London mergers and acquisitions watchdog, which funds itself from fees charged on transactions and filings, said it recorded a £3.8mn deficit after tax in the year to March. That marked the first such loss since 2014, according to data compiled by the Financial Times.
Staffed by a combination of employees and secondees from law firms and banks, the Takeover Panel’s limited formal powers belie the influence it wields over the City’s community of M&A bankers and lawyers.
The handful of instances where the regulator, which is an independent public body, has publicly censured dealmakers are an indication of how strictly its rules are observed. In the Panel’s 55-year history it has only deployed its most severe sanction — the “cold shoulder” that ostracises its recipients from the UK financial sector — four times, most recently with the former Rangers chair Dave King.
Credit Suisse and Freshfields were among those that received a rare “statement of public criticism” in 2015 for the way they advised on the creation of London-listed coal miner Bumi five years earlier; that was the first time the panel had ever censured a law firm.
The Takeover Panel’s income has dropped alongside a broader downturn in dealmaking, as a sharp rise in interest rates has ratcheted up the cost of debt and hit company valuations. The panel also reduced some of its fees, shrinking its income further.
“In the second half of the year, from October 2022 to March 2023, activity fell markedly in the face of inflation and rapidly increasing interest rates,” the panel said in its annual report.
“This substantial decline in market activity, coupled with exceptional legal costs this year, has led to the panel recording its first deficit for several years,” it added.
The Takeover Panel’s income fell 25 per cent in the year to March, to £11.4mn. Expenses climbed from £13.5mn to £15.7mn because of “significant increases in legal costs and IT expenditure”. The panel still has a substantial accumulated surplus of £33.5mn.
The number of firm takeover offers fell 20 per cent to 48, underlining the slowdown after the boom year of 2021. Just 12 of the deals had an offer value of greater than £1bn, down from 16 a year earlier, and none of the larger offers came after October as activity ground to a halt.
In its annual report published in July, the panel said there were signs of an increase in activity but warned that “it is not yet clear how strong or sustained this will be”.
However, data compiled by the London Stock Exchange Group showed that M&A involving a UK company fell 45 per cent in the nine months to September, compared with the same time a year earlier. That is the lowest figure for the period since 2009.
The panel is currently led by director-general Ian Hart, previously co-chair of UK investment banking at UBS.
