US bidders lead way on hostile UK takeovers

UK businesses will remain a target for hostile takeovers, with many would-be acquirers likely to be US-incorporated businesses seeking to take advantage of the favourable stock market conditions and the attractive valuations of a number of listed companies.

During the first half of 2021, there were 48 transactions subject to the UK’s Takeover Code involving companies listed on the Main Market of the London Stock Exchange or the Alternative Investment Market.

Of the 48 prospective deals, 22 constituted firm offers to acquire a UK public company - down from 30 offers recorded in the second half of 2020. There were also 24 possible offers and two announcements of formal sale processes and/or strategic reviews. Half of those 22 offers came from US companies with just seven made by UK bidders - it is clear that overseas acquirers consider the UK to be fertile territory for opportunistic acquisitions.

Most of the firm offers made in the first half of 2021 were recorded in the healthcare, financial services, investment and real estate sectors. According to Lexis Nexis, the total value of the 22 firm offers announced in the period across all sectors was £17.9 billion.

It is likely that we will see an increased number of hostile approaches, particularly for companies with an attractive asset base. If initial approaches are rejected and differences in valuation cannot be reconciled, we may see hostile bidders electing to bypass target company boards and discuss the strategic rationale for their bid directly with institutional shareholders.

Sophisticated prospective bidders that are well-versed in the requirements of the Takeover Code could launch hostile bids if the right circumstances arise, as they seek to control the investment narrative with shareholders and use their first-mover advantage to try and dispel any potential interloper risk.

Private equity funds are also continuing to seek potential opportunities to acquire UK companies that are subject to the Takeover Code, given the perception in the market that the depressed share price of certain companies does not adequately reflect the opportunities presented by the inherent value of their underlying assets.

Private equity funds are now much more comfortable operating within the particular regulatory architecture that the Takeover Code imposes and they are able to execute transactions in a sophisticated fashion, whilst demonstrating the ability to move quickly to secure high quality assets, particularly in the context of competitive situations.

We are seeing US bidders that consider UK public companies to be a strong value proposition attempting to take advantage of the perceived dislocation between a company’s current share price and its positive long-term trading prospects. The increased degree of unsolicited activity by US bidders is a reflection of the relative cheapness of UK mid-cap stocks in particular.

US bidders remain well-placed to take advantage of the relative weakness of sterling and to capitalise on the opportunities that the pandemic has presented. This degree of activity has precipitated a renewed focus from companies on implementing the correct defence strategy as they seek to ward off unwelcome approaches, as has been seen in a number of high-profile recent takeover battles.

Adam Cain, Legal Director and public M&A specialist at Pinsent Masons