Bids for UK companies averaged a 51% premium on firms’ share prices in 2023 as buyers sought out undervalued stocks, according to AJ Bell analysts.
This represents a jump from average premium prices paid during takeovers of 37% in 2022 and 43% in 2021.
“That is great news for anyone receiving bids on stocks in their portfolio but implies the UK market is still undervaluing companies,” analyst Dan Coatsworth said.
FireAngel Safety’s takeover by Intelligent Safety Electronics saw the highest premium paid of the year, with the shares being bought for 7.4p - 252% more than their market price of 2.1p.
Hotel Chocolat’s buyout by Mars for 375p per share also featured on the list, AJ Bell said, with the latter paying 170% above the stock’s market value of 139p.
Rising interest rates over the year likely prompted a lack of large cap takeovers, analysts added, given higher costs of servicing debt.
A potential reduction in rates heading into the new year could encourage an uptick in takeover attempts, therefore.
“Private equity firms flourished during the extended period of low interest rates, borrowing money cheaply to buy companies,” Coatsworth commented.
“With signs that interest rates might have peaked and central banks might cut rates in 2024, we could see private equity firms prepared to go after bigger targets.”
AJ Bell also highlighted Ladbrokes-owner Entain PLC (LSE:ENT) and Revolution Beauty as potential targets for takeovers, with the former having been linked with buyers and the latter having faced a fall in share price over recent years while developing close ties with Boohoo Group PLC (AIM:BOO).