The mergers and acquisitions market in the UK has emerged rejuvenated from its dormancy in 2023. The succession of bids for Rightmove and the takeover of Hargreaves Lansdown are just two examples of high-profile deals that have hit headlines this year.
In the first half of 2024, thirty London-listed companies received takeover offers for an average value of £1bn, according to the FT, as the value of M&A activity in the UK rose by two-thirds compared to the same period last year, albeit with lower volumes.
The recent uptick can be read more as a recovery than anything else, as M&A activity continues to track reasonably close to the COVID-impacted average levels since 2019. A general increase in activity can act as an antidote to the cheap valuations that have plagued the market in this country for some years now, and investors are certainly taking advantage of what they deem to be attractive entry points at present. The companies being bought, however, don’t see things in quite the same way; what is attractive to buyers can be “unattractive” to those being bought. Rightmove used exactly that word to describe the third bid from Rupert Murdoch’s REA Group on 25 September.
Despite the pockets of resistance, UK companies, whether it be by foreign buyers like REA, or by private equity like the Hargreaves Lansdown deal, are being taken off the market faster than they can be replaced. The concomitant growth in private markets, is a global phenomenon, as the chart below demonstrates.
Source: Barwon, World Bank, Pitchbook
However, the UK is suffering more acutely than most. UK plc has fallen significantly in number over the last decade. In January 2015, 2,429 companies had their shares listed on the London Stock Exchange. In May this year, this had fallen to 1,775, according to data from Statista. That’s a drop of 27% in less than 10 years, and it is a trend that has accelerated since April 2022.
Moreover, the UK firms that might have replaced those being taken private, through IPOs, no longer want to do so here. New York is the popular alternative, especially for tech companies like Cambridge-based Arm. Dublin-based gambling company Flutter also took the punt State-side recently, and even Shell is considering a move to list in the Big Apple in a bid to boost its valuation.
So, how to stop the rot? The route the FCA has taken is to overhaul the UK listing rules in an attempt to coax the would-be listers back to London. There is little doubt that the rule changes, which include handing senior management more power to make decisions without shareholder approval, and the introduction of dual class share structures, will make listing here more appealing. Yet these changes come at the expense of shareholder protections, something that this country has taken years to build up.
The FCA outlined in its feedback summary that the buy-side actors it had consulted were concerned about shareholder protections, and “provided additional examples of companies where DCSS (dual-class share structures) has led to corporate governance failures and harm to minority shareholders”. One need only look at the current acquisition of Paramount in the US to see the potential for this structure to give rise to inequality and unfairness amongst investors.
Though we do need to make listing in London attractive, sacrificing the protections of minority shareholders could prove to be a slippery slope. To paraphrase George Orwell, all shareholders were equal, but now some are more equal than others. In an attempt to give the UK market a short-term gain, these changes risk long-term pain for everyday investors.
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