Tumbling pound puts London firms at risk of foreign takeover frenzy
A sharp fall in the value of the pound could put London-listed firms at further risk of foreign takeovers after a spate of acquisitions this year, experts have warned today.
UK markets have been subject to a series of raids from overseas in the past eight months as buyers look to capitalise on a flagging pound and valuations that remain depressed since Brexit.
Experts have now warned that the currency turmoil sparked by the government’s so-called mini budget last week could make firms more vulnerable to takeovers, particularly from the US.
“We expect the recent volatility of the public equity markets (particularly in specific sectors such as technology, for example) and the collapse of the [pound] to continue to attract, and potentially supercharge, interest from US-based financial sponsors in UK listed companies,” Andrej Wolf, partner in the Global Corporate Group at Milbank LLP, told City PM
He warned that the availability of bank and public credit would remain the only impediment to a flurry of dealmaking, however, as volatility hinders the ability to accurately price borrowing.
Fears of further takeovers come after a string of high-profile London firms have been swooped on by foreign buyers in recent months, with Ted Baker, Aveva and Biffa all set to be snapped up from abroad.
British firms are the third most targeted in the world this year behind China and the US, according to data from Refinitiv.
Some lawyers have urged caution today however, with volatility likely to scupper interest from buyers in the short term.
“The falling value of the pound will continue to make UK companies attractive targets for international buyers, although I think it is too early to speak of a dealmaking boom as a result – we need to get to a position of relative stability and for confidence, which is a key driver of M&A activity, to be restored,” said Jon Gill, partner at Eversheds Sutherland.
He added that the rising cost of borrowing was likely to result in more distressed or accelerated M&A through the autumn, however, with the technology sector particularly vulnerable.
“In terms of sectors, the UK technology market continues to see lots of attention from international buyers, and is a key focus for US private equity, which continues to have significant amounts of dry powder that needs to be put to work.”
The take-private raids – along with a dearth of IPO activity – have shrunk the size of London’s markets significantly this year. More than £41bn worth of firms have already been acquired this year, according to data from Dealogic.