A majority of FTSE 250 bosses believe UK-listed companies are vulnerable to foreign takeovers this year, amid growing expectations that M&A activity will pick up as economic conditions improve.
British brokerage Numis found that “squeezed” valuations meant companies were increasingly focused on their own vulnerability to a potential takeover, according to an annual survey of UK “middle market” M&A intentions by FTSE shares 250.
Last week it was revealed that two UK-listed companies – events business Hyve and energy services company Wood Group – were takeover targets for US private equity.
Much of last year’s M&A activity was also driven by foreign buyers, including acquisitions by Aveva, Micro Focus and Avast in the UK-listed technology sector.
Stuart Ord, head of M&A at Numis, said 2022 “was a challenging year for M&A activity, with global economic pressures, tight debt markets and widespread volatility weighing on deal appetite”.
Ord said the slow start to deal-making in 2023 suggested UK M&A volumes for this year would be lower than in 2022, but a boost in confidence could lead to more activity in the second half of 2023.
More than nine in 10 FTSE 250 company directors expect to undertake some form of M&A this year, with a similar number expecting funding conditions to improve this year.
Numis surveyed 80 boards of directors at FTSE 250 companies and 200 institutional investors in January.
Ord warned that the UK stock market looked good value in some areas for higher-rated overseas buyers, given the pound was still quite weak against other currencies. But he said compressed valuations would also make it less likely that boards would recommend takeover approaches.
The gap in valuations has also prompted some companies to consider moving their listings or taking on additional US listings, such as UK betting group Flutter, raising fresh concerns about the strength of the UK listed market.
Many executives continue to point to reasons for caution regarding dealmaking, including the macroeconomic environment, financing needs and regulations. More than half of proposed regulatory barriers — including antitrust or national security — would be the biggest challenge this year, up from 38 percent in 2022.
Higher leverage was not seen as a problem, reflecting that the balance sheets of many UK companies are better capitalized than in previous downturns.
However, companies’ appetite to raise equity or use equity was lower than last year, given subdued valuation levels for many mid-market groups.