As private equity firms bounced around London auditioning advisors and lawyers late last year, top dealmakers were looking forward to a return to action.
Buyout houses had been plunged into a period of quiet as rising interest rates pushed up the cost of financing deals and inflation sent public market valuations into a spin.
But with London’s listed companies still cheap and the prospect of rate cuts not far off, a bargain hunt on the London Stock Exchange seemed just around the corner.
Save for some notable exceptions, however, including Thoma Bravo’s £4.3bn bid for Darktrace and Blackstone’s £1.3bn swoop on Hipgnosis, that frenzy is yet to materialise.
“While we continue to see private equity firms scour the market for acquisition opportunities and engage in initial offer discussions, meeting the value expectations of target company boards and shareholders has been challenging,” Michael Nicholson, Head of M&A at investment bank Peel Hunt, tells City A.M..
“While we continue to see private equity firms scour the market for acquisition opportunities and engage in initial offer discussions, meeting the value expectations of target company boards and shareholders has been challenging.”
Michael Nicholson, Head of M&A at investment bank Peel Hunt
Corporate buyers have instead been on the rampage, making over 20 firm offers for UK-listed companies so far this year, representing around 80 per cent of the market by both value and volume, according to Peel Hunt.
Some of London’s biggest listed firms are now firmly in play after bids from corporates, with Anglo American, Virgin Money, Redrow and DS Smith all falling into the sights of bids from rivals.
The corporate appetite has underpinned a wave of bids for larger companies. Nine firms worth more than £1bn are now under offer, compared to just one in the same period last year.
While the appetite is there from private equity, bankers Peel Hunt said corporates have not been held back by fears over price.
“Both overseas and domestic corporates have become significantly more active since the turn of the year. This is because they have been taking advantage of, amongst other things, the current window of opportunity to transact prior to election season kicking off both sides of the Atlantic,” Nicholson adds.
Similar troubles scuppered a wave of deals for private equity last year. Apollo’s bids for Wood Group and City A.M.-owner THG for example were repeatedly rebuffed by boards before the firm eventually gave up.
While “well-capitalised corporates are back in the game”, says Laura Ackroyd, an M&A partner at Herbert Smith Freehills, private equity has so far been subdued.
“Private equity bidders are still very much in the market; but are grappling with the rising premia expectations from boards and shareholders as a counterweight to market undervaluation,” she tells City A.M.
Behind the scenes, one lawyer said firms are “very active and are evaluating a number of potential targets”, and they “still have mandates to deploy capital and quickly”.
But with efforts underway to revive the flow of cash into the public markets and growing hopes of a rebound for the UK economy, many boards and shareholders now appear ready to hold out for higher prices rather than selling up on the cheap.