The UK has become a hotbed for mergers and acquisitions this year as dealmakers hunt for bargains in the country’s underperforming stock market.
Direct Line Insurance Group Plc and electronics retailer Currys Plc both rejected bids from overseas buyers this week, while UK warehouse operator Wincanton Plc got an offer from a US logistics provider, kicking off a bidding war with its French suitor.
The spate of offers comes as London equities trade around 40% cheaper than global peers on a key M&A valuation measure, the multiple of enterprise value to earnings. That metric has been on a downward trend since the Brexit vote almost eight years ago. An ailing pound and modest state protections against foreign takeovers also make UK firms more attractive to overseas buyers.
“There are still a lot of good quality companies, many with strong non-UK revenue streams, which make them attractive on a valuation discount basis for buyers who can pick them up relatively cheaply,” said Mark Taylor, a director at UK broker Panmure Gordon. These “can be bite-sized deals for some of the larger internationals.”
In a reflection of the sinking valuations, offers are coming in at high premiums — and many have been rejected.
Direct Line said a cash-and-stock bid from Belgian insurer Ageas which valued the UK firm at approximately £3.1 billion ($3.9 billion), or a more than 40% premium, was “unattractive.” And Currys said a sweetened offer from Elliott Investment Management still “significantly undervalued” the company, which has also drawn interest from China’s JD.com Inc.
“The scale of the premiums being offered highlights the low valuation of UK assets,” said Charles Hall, head of research at broker Peel Hunt. “There has been a marked shift to corporate buyers as well as a number of overseas acquirors.”
Wincanton said Friday its board will recommend the offer from GXO Logistics Inc. of the US, which has outbid rival suitor CMA CGM.
Activity is also picking up between companies listed on the London exchange, especially in beaten-down sectors like real estate and building products, where consolidation can help companies cut costs and gain scale.
LondonMetric Property Plc agreed in January to take over rival UK landlord LXI REIT Plc in a deal valuing the company at £1.9 billion. And Barratt Developments Plc struck an agreement in February to buy rival Redrow Plc, a combination that would create the UK’s biggest homebuilder.
Overall, buyers both foreign and domestic have announced $22.2 billion of acquisitions of UK targets this year, more than double the amount in the same period of 2023.
To be sure, most of the interest from overseas bidders is still for smaller companies. Deal activity among FTSE 100 firms remains moribund, held back by heightened borrowing costs and concerns about the economic situation in the country. Those factors meant that acquisitions of UK companies by foreign buyers slumped to about $70 billion last year, the lowest since 2009, according to data compiled by Bloomberg.