The City is set to come under siege from a “major and sustained” flow of takeovers of London listed companies next year that could see up to a third of small and mid-cap AIM businesses vulnerable to bids, an investment bank warned today.
Peel Hunt predicted that the trend of London listed companies being “taken out” by private equity or foreign based corporate raiders will accelerate in the New Year “absent an unexpected change in circumstances.”
The deluge of companies leaving the public arena is seen as a growing threat to London’s status as a pre-eminent global financial centre. A total of 88 companies delisted or transferred their primary listing from London’s main market this year, the highest since the financial crisis, with only 18 taking their place, according to the London Stock Exchange Group.
Michael Nicholson, head of advisory & M&A at Peel Hunt wrote in a report titled “Barbarians at the Gate”: “We observe a wave of demand approaching the shores of the UK – with strategic and private equity buyers simultaneously active – and our coastal defences feel weaker than ever.”
The report states that up to a third of small and mid-cap AIM businesses are vulnerable to acquisition due to a lack of liquidity, depressed valuations and “reduced ability to utilise the capital markets.”
Nicholson went on: “Approaches to UK listed companies are now coming at an increased rate with those that become public knowledge far outweighed by those that are yet to (or may never) see the light of day. We see this trend only accelerating in the new year, absent an unexpected change in circumstances. Over 2024, 1 in 20 of all UK listed companies have been put under offer publicly - the highest level we have observed in recent years.
“In addition to unsolicited approaches from potential bidders, we hear increasingly from UK boards who are seeking to explore their strategic options and assess the feasibility of a sale process.
“The option to run a private sale process under revised Takeover Code rules has made this a more palatable option for many boards. For smaller companies, low share liquidity, a share price that barely responds to positive news (but overreacts to negative news), and a perceived structural dislocation of the share price from fundamental value all call into question the merits of being listed.
“The exodus of capital from UK equity funds and the reduction of tax incentives to invest in AIM only serve to whip up the headwinds facing the UK small and mid-cap segment.”
