UK Public Takeovers
Hot takes from 2024 and Q1 2025
UK public listed companies have generally traded at a discount to other markets, particularly since CV-19. This has led to divergent views on valuation between bidders, targets and shareholders. In this article we look at recent trends in UK takeovers and provide some observations on how this is affecting takeover tactics.
Some key stats from 2024:
- There were 56 takeover offers (57 in 2023). Over 60% were cash offers but 21 involved listed or unlisted securities.
- The vast majority (51) were recommended by target board and continued to be recommended during the offer period.
- 5 bidders whose offers were initially recommended lost that recommendation to a higher bidder.
- There were a number of unsolicited or hostile potential bids which did not lead to a firm offer within 28 days (see PUSU below).
- 17 had a deal value >£1bn (4 in 2023), with highest value offer being £5.8bn offer for DS Smith plc by International Paper Company.
- 5 were subject of competitive bids (1 in 2023).
- Average premium in >£500m bids in the UK market in 2024 exceeded 50%, although the overall average premium was nearer 40%.
- 43% of bids were private equity take private bids (63% in 2023) and 8 of these had a deal value >£1bn. Several of the take private bids were consortium, co-investment and equity syndication bids.
What about Q1 2025?
According to this Peel Hunt Survey:
- There was an increase in UK M&A activity in 1Q, with 15 companies in ongoing bid situations.
- The average takeover premium in Q1 2025 is currently 36% vs the undisturbed price, which is in line with historic norms.
According to another recent Peel Hunt survey of non-executive directors of UK listed companies:
- 92% expect level of takeovers to increase in 2025 relative to prior years.
- 80% feel more vulnerable to a bid.
- Reasons for vulnerability in descending order are:
- Weak share price/undervaluation.
- Market level undervaluation of UK listed companies.
- Company underperformance
How is this affecting takeover dynamics?
Shareholders are becoming increasingly assertive in not allowing companies to be acquired at below what they consider is the underlying value. Boards are increasingly aware of this and play hard ball in negotiations. Under the Takeover Code, target boards can shut down bids where bear hug tactics are used, i.e. because due diligence and/or a target recommendation are required. This arises due to the Code rule known as “Put-up or shut-up” (PUSU) whereby if a target is outed as a bidder it must announce a fully financed takeover bid within 28 days or make a no intention to bid statement which (subject to certain exceptions prevents a bid for 6 months).
Consequently, the following trends are evident which affect public takeovers in the UK:
- Shareholders are less willing to provide irrevocable undertakings to accept a bid in advance, and are more prepared to voice opposition to a bid, even if recommended by the Board.
- Directors are less willing to engage with a bidder in private and/or to recommend/allow due diligence unless an indicative price is overwhelmingly recommendable. A high bid premium is expected and negotiations (whether in private or public) can be protracted.
- Current bidders tactics:
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- using ‘bear hug’ tactics and being willing to make no increase or final offer statements (which are binding) to corral boards to recommend and shareholders to accept. But most bear-hugs are not successful;
- considering contractual offers (which have a minimum 50.01%) acceptance threshold, rather than using a scheme of arrangement (which requires 75% vote of target shareholders);
- try to make shareholders insiders early to get their feedback on a proposed offer price (sometimes before even approaching the board);
- looking at other ways to bridge the valuation gap, such as equity alternatives or roll-over (which must be offered to all shareholders); and
- some bidders acquire material stakes (below 30% to avoid a mandatory offer) and play a longer game to get control (Frasers Group deploys this tactic in the UK retail sector with some success).
All this means that careful thought needs to be given to tactics and to minimise the risk of a premature leak of a takeover bid which triggers the PUSU.
4 April 2025
