As new Prime Minister Andy Burnham sets out his ambition to reinvigorate the UK economy, a wave of takeover activity targeting UK-listed companies is highlighting both the strength and the vulnerability of UK plc.
The latest example comes with Mitie agreeing to a £3.1 billion acquisition by private equity-backed rival OCS Group, underscoring continued appetite from buyers for British businesses. According to Aberdeen Investments, this sustained interest reflects the enduring appeal of UK companies but also contributes to a steady contraction in the domestic stock market.
The scale of that contraction is becoming increasingly difficult to ignore. The number of companies in the FTSE All-Share has fallen by 11% over the past five years, while the combined FTSE All-Share and FTSE AIM All-Share now feature nearly 300 fewer companies than they did half a decade ago.
At the same time, takeover momentum is accelerating. Deutsche Numis reports 27 confirmed or potential bids so far this year, with a combined value exceeding $70 billion. Activity has intensified in recent weeks, with nine approaches in the past month alone, including interest in major names such as Segro, easyJet and Rotork. Buyers are also paying significant premiums, averaging around 39%, reflecting strong conviction in the value on offer.
For many investors, the trend points to a persistent valuation gap. Rebecca Maclean, Investment Director for Developed Market Equities at Aberdeen Investments, argues that global buyers are capitalising on an opportunity public markets have overlooked.
“The UK’s valuation discount is not a secret,” she says. “Strategic buyers and corporates recognise what public markets are overlooking: many UK-listed companies are high-quality global franchises trading at unjustifiably low valuations. Unsurprisingly, they are swooping in to secure those assets before the sale ends.”
Maclean emphasises that this is not simply opportunistic bargain hunting. Companies such as Rotork and Intertek, she notes, demonstrate the calibre of businesses attracting attention, firms with durable competitive advantages, strong cash generation and consistent returns.
“Public markets may have fallen out of love with dependable compounders,” she adds, “but strategic acquirers continue to recognise their value.”
A key factor underpinning this activity is the global nature of UK-listed businesses. Around 75% of FTSE All-Share revenues are generated overseas, meaning acquirers are effectively gaining access to international franchises at a relative discount. Analysis from Goldman Sachs shows that US buyers, in particular, are concentrating a disproportionate share of their European acquisition spending in the UK.
Far from being deterred by domestic economic conditions, overseas investors appear to view the UK as one of the most attractive markets for high-quality assets.
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Despite the outflow of listed companies, there are signs of resilience within UK equities. Corporate buybacks remain robust, supported by strong balance sheets and healthy cash generation, while total shareholder returns combining buybacks and dividends are running above 5%.
The broader macroeconomic backdrop may also be turning more supportive. UK growth has proven more resilient than expected, with GDP revisions pointing upwards, while the Bank of England has paused rate rises as it balances inflation and growth concerns. Political uncertainty may also ease under new leadership.
However, the longer-term question remains unresolved. While takeover activity signals confidence in the underlying strength of UK businesses, it also risks hollowing out the public markets. As Maclean suggests, the debate may be shifting from whether reforms such as scrapping stamp duty are desirable to whether they are now essential to preserve the depth and competitiveness of London’s market.
