It’s safe to say M&A deals are back on the menu, with London witnessing a jam-pack feast of small, medium and large takeovers, take privates and combinations in the space of one short week.
Just today, we saw TI Fluid Systems PLC (LSE:TIFS) agree to a £1 billion take-private deal with ABC Technologies, the global plastics manufacturer owned by US asset manager Apollo.
In another noteworthy PE deal this week, hospitality group Loungers PLC (AIM:LGRS) agreed to a premium 310p-per-share takeover offer from US PE firm Fortress Investment Group.
The Loungers deal was a pretty unique one- we’re used to seeing PE vultures swoop for undervalued assets, but Loungers, reportedly, took the initiative by seeking out a take-private itself.
As AJ Bell's investment director Russ Mould said of the deal: “Interestingly, it turns out that Loungers put itself up for sale earlier this year because it acknowledged the market wasn’t attributing fair value, so selling to a third party was an alternative way of generating an uplift for shareholders.”
Ahh, so not so unique after all. UK-listed companies have decried their inferior valuations for years; it’s been perhaps the motivating factor behind the endless spate of stock market delistings and take privates.
Delistings escalate
No less than three AIM-listed small caps – Shapero Rare Books-owner Scholium Group Plc (AIM:SCHO), Argent BioPharma Ltd (LSE:MXC, OTC:RGTLF, ASX:RGT) and gaming minnow Webis Holdings (AIM:WEB) plc – expressed this sentiment when they separately announced their delistings this week.
In the financial services space, Coventry Building Society was given the regulatory green light for its acquisition of the Co-operative Bank plc (LSE:CPBB).
Both parties initially agreed to the £780 million acquisition in May. With regulatory approval sealed, the merger is expected to close on new year’s day.
It certainly wasn’t the biggest banking merger in the headlines this week. That award goes to Nationwide Building Society’s £2.9 billion takeover of Virgin Money UK PLC (LSE:VMUK).
The Nationwide-Virgin deal was closed in October, but the contents of Nationwide’s interim results produced an interesting nugget of information on the deal.
Nationwide penned a gain of £2.3 billion on the value of the Virgin assets it acquired. Perhaps it was a low-ball offer after all.
Direct Line Insurance Group PLC (LSE:DLG) is, evidently, a bit more cynical of any offer for its assets. The FTSE 250-listed insurer this week rubbished Aviva plc’s £3.3 billion takeover proposal as "highly opportunistic and substantially undervalued the company".
“The board considered the proposal to not reflect the standalone value that can be delivered by the company,” it added.
This is the second bidder that Direct Line has rebuffed this year, having rejected Belgian giant Ageas earlier in March.
Though Direct Line rebuffed Aviva’s advances, it is highly unlikely that Aviva won’t make another, more enticing offer, in due course.
All in all, it's been a busy week for the City’s dealmakers, and that’s excluding the M&A deals ticking along behind the scenes.
One of the biggest is FTSE 100-lister cardboard merchant DS Smith PLC (LSE:SMDS)’s pending acquisition by US rival International Paper, which “remains on track”, per a September update.
Of course, there’s also Thoma Bravo’s £4.2 billion acquisition of Darktrace PLC (LSE:DARK) and Czech billionaire Daniel Kretinsky’s will-he-won’t-he bid for Royal Mail owner International Distribution Services PLC (LSE:IDS) for £3.6 billion.
But what does it all mean?
Unloved and going cheap
“The biggest theme currently on the UK market is companies being gobbled up because they’re unloved and are going cheap,” AJ Bell’s investment analyst Dan Coatsworth told Proactive.
He continued: “For example, TI Fluid was on a bargain basement valuation for years, and Loungers never seemed to win over the market despite making good progress strategically since listing five years ago, hence why management quietly put it up for sale.
“Direct Line has been through a rough patch and investors only seemed to focus on the negatives, judging by how its share price has stayed in the doldrums for several years.
“However, the problems look fixable, hence why Ageas and now Aviva saw an opportunity to snap up a rival. There will be many companies in the general insurance space who would love to own Direct Line – it’s just a question of price.”
If UK-listed stock prices keep on trading at a discount to their global peers, expect this flurry of M&A deals to continue.
That’s great for dealmakers, but, as Peel Hunt’s chief executive Steven Fine told the Financial Times today, it is also leading to a de-equitisation of the London capital markets.
A bittersweet trend indeed.