Concerns that Britain is far too easy-going when it comes to allowing foreign bidders to buy UK-listed companies have a long history. From contentious takeovers of beloved British brands (such as 2009’s takeover of Cadbury by US food giant Kraft) to small but promising tech stocks being swallowed before they can become the UK’s answer to Amazon (US firms bought a record 130 UK tech firms in 2021, says start-up monitor Beauhurst), the subject inspires strong feelings.
A new study by Duncan Lamont at asset manager Schroders suggests there is something to these concerns. Britain really is more prone to overseas takeovers than similar markets. A third of the major companies listed in the UK ten years ago (using the MSCI UK IMI index, which covers around 360 UK stocks) have since vanished via takeovers or de-listings. That’s similar to the US. What stands out is that most buyers of US listed companies were other US stocks. In France, only 30% of companies that de-listed went overseas, with Germany on just 25%. But in the UK, the figure stood at 54%. By contrast, just 11% were taken over in oft-hyped private equity.
The UK valuation discount
What’s behind the gap? Lamont argues that this may be due in part to the UK’s past success at “attracting overseas companies to list in London”, particularly in the energy and materials sectors. Because these companies are already largely based outside of the UK, they are more likely to appeal to multinationals. But a bigger issue might be the fact that UK-listed companies look cheap relative to peers listed elsewhere. This London-listed discount – driven largely by the post-Brexit shunning of the UK by global fund managers – might look like an opportunity to smart investors. This may be bad news in the long run for the economy, says Lamont. If the City comes to be viewed as having “an inability to nurture companies to sufficient scale”, then fewer companies will list.
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Given the finance industry’s importance in terms of tax revenue to the UK, that would be bad news. But as far as individual investors go, the best response is “if you can’t beat ‘em, join ‘em”. After all, if the UK currently trades at an irrational discount, investors in a functioning free global market practically have a duty to take advantage of that. And the rewards thus far have been appealing – the median takeover target in the study returned 38% in the period before delisting, beating its sector by 25%.
In all, it’s just another good reason to put at least some of the equity portion of your portfolio into big UK stocks. A FTSE 100 tracker such as iShares Core FTSE 100 UCITS ETF (LSE: ISF) will do the job cheaply
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