The number of failed takeovers of UK-listed companies has more than doubled recently as boards reject bids they perceive as opportunistic, taking advantage of cheapened stock prices. Recent examples include Currys and Direct Line, both of which rebuffed offers deemed too low by their boards. Currys rejected an improved offer of 67 pence per share from US investor Elliott Advisors, which represented a 42% premium to its undisturbed share price, while Direct Line found a proposal from Ageas "unattractive."
Dealmakers had hoped for a rebound in mergers and acquisitions this year after a slump in 2023, which saw global dealmaking fall to its lowest since 2013, particularly in private equity-led buyouts due to higher financing costs and economic uncertainty. However, the UK has seen increased takeover activity, with bidders targeting the relatively low valuations of FTSE 100 and FTSE 250 companies. This trend highlights a significant gap in valuation expectations between buyers and sellers, leading to numerous rejections and what one expert called "buyer frustration."
High borrowing costs and restrictions on financing under UK takeover rules, which limit bidders to approaching six potential bank lenders before making an offer public, have further hampered buyers. The "put up or shut up" (PUSU) rule, which gives bidders 28 days to firm up an offer once interest is leaked, can also complicate deals. Some buyers are now resorting to strategies like the "private bear hug," proposing offers directly to leading shareholders to secure support before approaching the target board.
Despite an expected improvement in interest rates and financing markets, a return to frenetic deal activity is not anticipated. However, UK mid-cap M&A is heating up, with generous takeover bids for companies like Tate & Lyle and Spire Healthcare, which received offers exceeding 55% premiums, significantly higher than the typical 30% markup. This activity is driven by a valuation gap, as the FTSE 250 trades at 12 times forward earnings compared to the US S&P 400 MidCap's 17 times. Mid-caps constitute over 60% of long-term UK dealmaking and three-quarters since 2020. If this deal momentum continues, it could eventually lift overall sector valuations, though premiums might not remain as high.
