London firms dust off ‘defence manuals’ ahead of private equity offensive
London’s listed firms have been dusting off “defence manuals” and conducting “dry-runs” in recent months as they prepare to fend off unwanted approaches from private equity houses, insiders have told City A.M.
City lawyers and PR firms say they have been drafted in to prepare defensive efforts for London-listed companies ahead of a predicted wave of takeover attempts from private buyers in the coming months.
Lawyers at law firm Herbert Smith Freehills said a number of potential buyers were “poised” for deals in the opening months of the year, and target companies had been forced to ramp up communication with shareholders and pitch their strategic plans in advance of a publicly disclosed bid.
“The most important thing is for firms to know where their shareholders are,” Mark Bardell, a public M&A partner at Herbert Smith Freehills, told City A.M.
“The tricky bit for a listed company board in all of this is, on the one hand, you don’t want to sell the company too cheaply. But on the other hand, you don’t want to close the door on a buyer that could pay a significant premium to shareholders.”
Boards need to have a “real sense of how supportive the shareholders are” and at what point they “move from hold to sell”, he added. Some boardrooms have also been acting out “dry runs” and wargaming their response in case they fall into the sights of buyers, Bardell said.
Despite still-subdued levels of M&A across the UK, some 40 firms were plucked from the London Stock Exchange last year. Private equity firms are now widely expected to launch a renewed flurry of deals in the opening months of this year as interest rates and valuations on the public markets stabilise.
In preparation for hostile takeover attempts, listed companies traditionally draw up so-called defence manuals that map out the response to an unwanted bid from companies. Such documents contain workstreams across finance, communication and advisory teams to explain the response following a public approach.
You don’t want to come straight out with an announcement saying ‘get stuffed’
Helen Roxburgh, partner and head of public M&A advisory at KPMG UK, told City A.M. that certain companies had been “dusting off” their defence manuals in recent months. Partner at City law firm CMS, Alasdair Steele added there was a “definite uptick” in companies readying the documents in expectation of an unwanted approach.
One City communications chief told City PM that his listed clients had been on the alert for over a year and typically have a number of “skeleton” announcements lined up in the event of an unwanted bid.
“You don’t want to come straight out with an announcement saying ‘get stuffed’, so it’s likely that they’ll have a skeleton announcement in place to acknowledge the talks and say you’re considering the takeover,” the person added.
“After you’ve got that out and spoken with shareholders, then you can more firmly say ‘get stuffed’.”
The scale of planning points to a looming wave of deals in the capital this year, as pent-up demand and more stable economic conditions allow private equity firms to go on the offensive again.
Despite a predicted frenzy of deals in the first half of last year, take-privates did not begin to gather steam until the final quarter as inflation cooled and markets began to price in interest rate cuts.
London firms are perceived to trade at a heavy discount to their international peers and be ripe for buyers. Analysts at Peel Hunt warned two weeks ago that the pace of firms leaving the market could be “relentless” without fast action to boost the appeal of the market by regulators and politicians.