Foreign buyout boom sparks warnings of UK market ‘depopulation’

Foreign acquisitions of UK companies nearly doubled in value in the second quarter of the year as concerns continue to grow over the impact on the stock market.

The value of inward mergers and acquisitions — foreign companies taking over UK companies — rose to £25.4bn between April and June this year, compared with £15.7bn between January and March, according to the Office for National Statistics.

“The UK public markets remain a highly attractive hunting ground for international bidders who see significant value which is not reflected in current trading valuations,” said Patrick Sarch, head of UK public M&A at White & Case. 

“With UK-listed companies continuing to trade at persistent discounts to their international peers, this shows no signs of slowing down.”

A combination of low valuations and the capital requirements for internal investment have prompted a wave of M&A in the UK market this year, with the UK financial services sector seeing a 25 per cent increase in the value of M&A in the first half of the year, according to EY. 

Recent foreign takeovers of UK companies include Apollo’s £6bn takeover of EasyJet last month, Zurich Insurance Group’s £8bn takeover of insurer Beazley, and EQT Group’s £11bn acquisition of Intertek.  

While some have welcomed the activity, others have warned that the number of British companies being taken over by foreign firms risks a “rapid depopulation” of the market.

“To say that the UK has a problem in retaining its companies and listing new ones would be a massive understatement,” said Charles Hall, head of research at Peel Hunt.

But the continued foreign takeovers should be welcomed, Sarch said. “We view this as welcome inbound investment into our open economy from buyers who see opportunities to unlock greater value under private ownership. 

“An absence of international demand would be far worse.”

The overall number of M&As involving a change in majority share ownership fell from 407 in the first quarter to 353 in the second quarter, the ONS said.

This slowdown could continue, according to the Bank of England’s latest summary of business conditions, which reported that the war in the Middle East may weigh further on businesses’ plans.

“Investment intentions have become more subdued since the Iran conflict and are now broadly flat for the coming year, with higher uncertainty and financing conditions continuing to weigh on contacts’ willingness to commit to new projects.”

Increasingly lacklustre valuations and falling activity in the UK market over the past few years have prompted the government to attempt to reinvigorate the listings market with a range of measures including an overhaul of listing rules and increased pressure on pension funds to increase investment in UK companies.