The wave of takeovers and shareholder activism across the UK and Europe has further to run, JPMorgan believes, as persistent valuation discounts provide a fertile landscape for deals.
It comes amidst a flurry of interest in FTSE 350 companies, including DCC today, following deals for easyJet, Segro, Tate & Lyle, Mitie and Rotork in recent weeks, with more than 150 takeover bids of London-listed companies the start of 2023.
JPMorgan said European equities "broadly fit" the usual profile sought by activists – undervalued companies with identifiable opportunities to improve governance, capital allocation or operations, but which are not in financial distress.
The UK and Germany have already experienced increased campaign volumes, while proposed EU regulatory revisions could accelerate activity across the region.
Companies with healthy balance sheets and conservative payout policies were described as "natural candidates", by strategists at the US investment bank.
Capital returns are becoming a greater focus for campaigners; JPMorgan’s back-testing found that companies targeted by activists seeking higher shareholder returns subsequently delivered strong 12-month performance. European buybacks have also reached fresh highs, narrowing the gap with the US.
Takeover and consolidation activity could accelerate alongside the activist push, too, especially in the UK, where the strategists noted that roughly 20% of UK companies trade below book value, compared with 15% in Germany and France and a global average of 10%.
European M&A volumes have risen from their 2023 low and are expected to "remain resilient through 2026", with banks, asset managers and telecoms seeing increased activity.
The wider backdrop is also improving. Earnings, economic surprises, PMIs and credit growth are rising, with IPO activity picking up in a muted fashion, together all supporting JPMorgan’s view that AI is unlikely to remain "the only story in town".
