Sometimes it’s nice to be wanted.
After Liz Truss’ “mini” budget last year triggered market chaos and a coordinated sale of UK assets, the country was routinely described as “uninvestable” for a period.
Foreign investors, multinational corporations choosing where to put their money, and big names in the city all expressed the view that the UK’s political and political turmoil had rendered it untouchable. One chief executive of a perennial takeover target confessed to sleeping soundly at night, secure in the knowledge that potential buyers, who were mostly in the US, found the UK basically off limits.
Has the mood changed? The Tiggerish advisers’ chatter about ideas being dusted off and work resuming is best treated with skepticism. But this week, two takeover approaches to UK-listed companies were made public, both by US private equity funds. First, events company Hyve is said to have received an approach from Providence Equity, valuing the company’s equity at around £300m. company at around £2 billion, including debt. Perhaps the smell of rotten lettuce has subsided?
The global business market had, to be fair, ground to a halt before the scent of a prime minister gone wrong permeated the UK. Global private equity volumes more than halved in the second half of last year compared to the first, according to Refinitiv, as banks closed their doors to funding and investment committees struggled to assess a likely path. for interest rates, inflation or growth. Take-private deals backed by private equity in the UK have dwindled to virtually nothing. Year-to-date, negotiations fell 70%.
Private equity has often led a business resurgence, with the sector keen to find bargains before the market’s cyclical discounts wear off and driven by the need to put the billions raised in the hot market into fundraising in recent years. UK economic data came in better than expected, raising hopes for a milder downturn. Downing Street soap opera writers seem to have taken a sedative.
Meanwhile, the conditions that attracted buyout groups to the UK market in recent years are still there: the stock market remains cheap (though not as much as before) and the pound, although well below its September lows, is weak against the dollar. . The banks and energy companies that were a drag in the days of free money have bolstered London’s indexes by rising interest rates. On a combined and sector-adjusted valuation basis, the UK discount to global equities has declined from around 25% at its peak to 15%, notes Simon French of Panmure Gordon. There is still a glut of sentiment in UK equities that persists regardless of the sector, says French.
It’s worth noting that in Hyve and Wood, private equity dealers landed on beautiful international deals that are listed in the UK: only about a quarter of Hyve’s revenues last year were in the UK; Wood earns most of its money abroad. Neither reached an agreement: Wood rejected three proposals; Hyve’s board is considering an approach that Investec analysts call “opportunistic.”
Even if commercial activity is back from the dead, a complete revival seems far away. Private equity groups have a lot to deal with with existing investments where valuations have plummeted. Banks are still cleaning up the outstanding leveraged loan book from the last cycle; the appetite for new loans is reduced, limiting the size of the business. But the market is improving. And private credit is increasingly filling part of that gap, albeit at a higher cost and with more provisions than public markets have required in recent years.
It’s hard to feel too confident about the strength of a deal recovery or UK comeback at this stage. But hey, we can go back to being a relatively cheap and slightly troubled stock market being picked on by private equity groups looking for a bargain. And honestly, that feels like progress.