Through to Q3, 2024 was the year of the billion pound plus deal in the UK public M&A market. There were 15 firm offers which exceeded this value mark by the end of Q3 2024, a considerable increase from the 4 firm offers in 2023. The year has also seen significant appetite for public M&A among both private capital and strategic bidders (alongside a significant increase in transactions with multiple publicly-identified potential bidders), and a wide geographic spread of offerors, illustrating that the UK market remains an attractive cross-border investment opportunity. Highlights of the notable deals so far this year include:
- CVC, Nordic Capital and ADIA’s £5.4bn consortium offer for Hargreaves Lansdown plc, which is expected to close in Q1 2025 (subject to regulatory clearances);
- Thoma Bravo’s $5.32bn take private of Darktrace plc, another significant transaction demonstrating private capital’s increased appetite for larger equity cheques in recent years; and
- a number of high-value, high-profile strategic transactions, including Carlsberg’s £3.3bn offer for soft drink supplier Britvic plc and the competitive strategic bids for each of Wincanton plc by GXO Logistics and Spirent Communications plc by Keysight Technologies.
Alongside the increase in big ticket takeovers as compared with recent years, 2024 has also seen large volumes of smaller bids, often with complex structures, as well as a number of smaller UK listed companies putting themselves up for sale (citing as rationales well-known challenges for smaller listed groups and expected additional flexibility and growth opportunities in private hands).
The overall trend of increasing market activity, in particular by strategic bidders, is likely attributable to (at least prior to the recent budget):
- a more stable economic environment and relative UK political stability;
- inflation continuing to ease;
- the predicted fall in interest rates;
- higher cost bases driving the need for synergies;
- strategic buyers seeking alternative ways to create value and achieve a market re-rating.
Commentary that the UK equity market remains undervalued appears to be borne out by a recent increase in the bid premia that offerors are having to pay to bridge the value expectation gap and secure a board recommendation. While the typical bid premium range previously sat at 30-50%, it has recently risen to 40-60%. This gap in value expectations between target boards, shareholders and bidders is also likely behind the recent increase in public ‘bear hugs’ and failed possible offers, including:
- REA Group’s £6.5bn possible cash and shares offer for Rightmove plc which was faced down by the Rightmove board who argued that it undervalued the company and was ultimately withdrawn by REA Group; and
- BHP Group’s £38.6bn possible all share offer for Anglo American plc, which was seen off by the Anglo board on the basis of both value and uncertainty in relation to BHP’s proposed parallel demerger of certain of Anglo’s non-core assets.
Differing expectations as to value, combined with a divergence in shareholders’ willingness to take a longer term view on value, have also played out in an increase in transactions featuring unlisted securities alternatives (or ‘partial share alternatives’), including the now-completed acquisitions of Hotel Chocolat Group plc and Ergomed plc and the live offer for Hargreaves Lansdown plc. Partial share alternatives have often been used by private equity bidders for companies where certain shareholders may wish to retain on‑going exposure to the company, with the share consideration being structured as available to all shareholders in order to meet Takeover Code requirements of equality. However, it is not exclusive to private capital as shown by Mars’ offer for Hotel Chocolat Group plc.
In addition to partial share alternatives, 2024 has witnessed a more general shift towards shares forming part of (or a larger part of) the consideration mix, with 18 firm offers involving listed or unlisted shares as part of the consideration so far in 2024 (representing over a third of the firm offers made), compared to 12 firm offers in the whole of 2023.
While the first three quarters of 2024 witnessed more high value deal activity in the UK public M&A space than 2023, Q4 has so far been slower with a shift towards smaller transaction sizes. Although it remains to be seen what the rest of the year and 2025 will bring, in particular in the light of any changes in business outlook following the recent budget, we anticipate significant continued (and potentially multi-party) interest in UK targets by both private capital and strategic bidders.
