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Takeovers of smaller London-listed companies at 12-year high
American buyers are leading the race for British businesses, raising concerns about the future of London’s junior stock market
Low stock market valuations and rising confidence about the economy have driven the number of mergers and acquisitions of Britain’s small companies to the highest level in 12 years.
In the 12 months to the end of June, 37 companies listed on Aim, London’s junior stock market, were acquired by overseas rivals and private equity firms, more than double the number of the businesses bought in the previous year, according to research by UHY Hacker Young.
Colin Wright, chairman of the accountancy group, said that Aim, which turns 30 next June, was now a “happy hunting ground for US private equity funds”.
In March, KKR, the private equity firm, confirmed its £1.3 billion takeover of Smart Metering Systems, a Glasgow-based energy infrastructure company. HIG Capital, a Miami-based buyout group, completed its acquisition of DX Group, the logistics business, for £307 million in January, while Mars paid £534 million for Hotel Chocolat at the end of last year, almost three times what the stock market had thought it was worth at the time.
Last week Keywords Studios, a computer games business and one of Aim’s largest companies, agreed to a £2.1 billion takeover from EQT, the Swedish private equity firm.
Takeovers are being driven by the cheap valuations of London-listed companies, particularly relative to their rivals in the United States. Valuations in Britain have lagged those in America since the run-up to the 2016 Brexit vote amid worries about the UK economy and political stability. Combined with market volatility, these factors have been deterring private companies from listing their shares in London.
Wright acknowledged widely held concerns about the shrinking size of Aim and the lack of companies going ahead with initial public offerings. “There’s a risk that US private equity funds will pick the best fruit from the tree but nothing will grow to replace it. With only three initial public offerings on Aim in the past quarter, there is a lot of hope across the UK markets that a [potential] Shein IPO will be the first of a wave of new listings,” he said.
In April Charles Hall, head of research at Peel Hunt, the broker, warned that the FTSE SmallCap index, a more senior marketplace to Aim, would “cease to exist” in about four years’ time if the present takeover “feeding frenzy” and dearth of stock market floats continued.
https://www.thetimes.com/article/bfd7795c-f9cb-4bd1-a393-c477c0f71c49?shareToken=1fa03a782b04f875de6e298414e4ce37
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