Equities

UK M&A Surge: Currys, Deliveroo Targeted Amid Low Valuations

UK M&A Activity Surges with $43 Billion in Deals, Driven by 42% Market Discount and Political Stability

By Alex P. Chase

7/11, 06:28 EDT
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Key Takeaway

  • UK M&A activity is surging, driven by low equity valuations and political stability, with notable targets like Deliveroo Plc and Currys Plc.
  • Foreign bidders are active in the UK market; Carlsberg AS acquired Britvic Plc for £3.3 billion.
  • Private equity firms are impacting the European IPO pipeline by acquiring companies before they go public.

Surge in UK M&A Activity

The UK is poised for a significant increase in mergers and acquisitions (M&A) in the second half of the year, driven by the country's relatively low equity market valuations. According to an informal survey conducted by Bloomberg News in June, British companies accounted for more than 60% of the names mentioned at least twice as the most likely M&A targets. Notable companies identified include food delivery platform Deliveroo Plc, electronic retailer Currys Plc, and engineering specialist Dowlais Group Plc.

The uptick in UK deals this year has been largely attributed to the country's stock market trading at a 42% discount to the MSCI World. Data compiled by Bloomberg indicates that the volume of deals is nearly double that of the entire previous year. Political stability, following the Labour Party's landslide victory in the July 4 election, is expected to further support this M&A surge. Chris Forgan, portfolio manager at Fil Investment Management Limited, noted, "A level of optimism has also returned to the M&A sector. Corporates are looking to take advantage of this, and deals are happening at attractive premiums."

Foreign bidders have been particularly active in the UK market. For instance, Carlsberg AS recently agreed to acquire soft drinks producer Britvic Plc for £3.3 billion (€3.9 billion). Other companies that have been snapped up or accepted offers this year include Royal Mail owner International Distribution Services Plc, cybersecurity firm Darktrace Plc, packaging giant DS Smith Plc, and logistics business Wincanton Plc.

Renewable Energy Sector Attracts Interest

Under the new Labour government, investors are anticipating increased M&A activity in the renewable energy sector, given the party's focus on supporting this industry. This trend mirrors similar developments in Europe, where Abu Dhabi firm Masdar agreed to buy Greece’s Terna Energy SA in a €2.4 billion ($2.6 billion) deal. Additionally, alternative asset manager Brookfield is leading an investor group towards a €6.1 billion takeover of French renewables producer Neoen SA.

Overall, there have been nearly $123 billion worth of pending and completed M&A deals targeting listed European companies so far this year, with the UK accounting for approximately $43 billion, according to Bloomberg data.

Private Equity's Role in M&A

Private equity firms have been actively acquiring companies that were initially planning to go public, thereby impacting the European IPO pipeline. For example, bus and train operator Flix SE's listing plan was shelved when investment firm EQT AB teamed up with German logistics tycoon Klaus-Michael Kühne to acquire a 35% stake. Similarly, Platinum Equity agreed to a deal for Nordic Capital’s German wheelchair maker Sunrise Medical shortly after the company announced IPO plans.

Joachim Klement, a strategist at Liberum, explained, "Private equity has enormous dry powder that needs to be deployed, so they are often willing to pay higher prices to acquire a company than are currently achievable in an IPO. Companies that are looking for new capital are thus often choosing to sell themselves to private equity or competitors rather than IPO."

Despite the strong start to the year, with more than $14 billion raised on European stock exchanges, the momentum for IPOs may not be sustained due to political risks and volatile stock markets.

Street Views

  • Chris Forgan, Fil Investment Management Limited (Cautiously Optimistic on UK M&A sector):

    "A level of optimism has also returned to the M&A sector. Corporates are looking to take advantage of this, and deals are happening at attractive premiums."

  • Alexandra Jackson, Rathbone UK Opportunities equities fund (Neutral on high-quality UK companies):

    "As flows return to the UK, institutions will feel more confident to push back, and keep hold of these trophy assets."