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UK firms in the frame for overseas acquirers

The first half for what's called 'inbound M&A' has been fairly slow, but the dynamics are now changing.
UK firms in the frame for overseas acquirers, says Liberum
UK firms could become an increasing target for foreign buyers

The current environment, post the Brexit vote, is ripe for foreign firms to come in and snap up or merge with UK companies, reckons Liberum, which has outlined to investors potential targets.

The first half for what's called 'inbound M&A' for the UK has been fairly slow, notes analyst Sebastian Jory, but the dynamics are now changing.

The broker cites property group Shaftesbury (LON:SHB)  to be a prime acquisition target, but also oil firms like Premier (LON:PMO)  and Tullow (LON:TLW).

It also named construction and services firm Balfour Beatty (LON:NBBY), while from the tech space, Liberum pinpoints Imagination Technologies (LON:IMG).

Jory notes that with sterling close to 30-year-lows, companies are attractively valued (cheaper) for foreign firms, while globally M&A is healthy and has picked up in the last two years with £720bn of pending deals.

Significantly, China also appears to have its buying hat on, this year having already seen the biggest ever proposed Chinese takeover of a foreign firm  - ChemChina's $43.8bn bid for Syngenta in an all-cash deal.

The broker rates Syngenta a 'buy', saying the transaction is likely to be approved.

To property, and while Brexit threatens all UK real estate asset values, London's West End focused Shaftesbury is particularly susceptible to M&A given the particular attractions of its portfolio, says Jory.

The weaker sterling makes its portfolio cheaper to overseas investors, while it could enhance the UK's attraction to tourists, bolstering Shaftesbury's restaurants and leisure offer.

Liberum, meanwhile, sees 'deep value' in Balfour Beatty's (LON:BBY) PPP (public-private-partnerships) portfolio and continues to see its low risk, inflation linked, government backed infrastructure portfolio as an attractive asset.

"Brexit exposure in Construction will be limited as Balfours operates in a variety of different geographies, with strong performance and outlook in the US, the largest business, and self-help should drive margin improvement," it adds.

Tullow, which is rated 'sell' with a target of 178p and Premier (Buy, target 136p) are targets as they have small enough market caps not to create political issues over control if bought and financing will not be an issues, reckons the broker.

Importantly, they also operate large parts of their portfolios and can determine the timing of any investment.

Imagination Technology, rated 'buy' with target of 200p,  the licenser of software for entertainment and consumer industry, could have multiple buyers, suggests Jory.

"The asset is strategic and attractive to a number of players including the Chinese government-backed Tsinghua Unigroup which recently took a 3% share. Separately M&A talks with Apple broke off a few months ago, but after a six month gap the company can return to discussions," he notes.

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