Private equity swoops on UK companies

Private equity firms have struck 13 deals in Britain so far this year worth a total of almost $31bn – more than double the number for the whole of 2020. 

“Buyout firms have struck 13 so-called public-to-private deals in Britain so far this year for a total value of almost $31bn,” says Ben Dummett in The Wall Street Journal. That’s more than double the number for the whole of last year and the best performance over the same period since 2007. 

Private-equity funds invest in private companies or buy out publicly listed ones. The bidding war for Wm Morrison Supermarkets has only been the most “high-profile” example of the trend. Healthcare, property and defence businesses are also being snapped up. 

Why the boom? Private-equity firms have “mounds of low-cost debt to make acquisitions” thanks to low interest rates. But takeovers usually require the buyer to pay a premium, which is difficult to justify in the pricey US market.  

Britain, by contrast, is cheap. Data from broker Peel Hunt shows that on a forward 12-month price/earnings basis Britain is “40% cheaper than the US market and 25% cheaper than the eurozone”, says cmcmarkets.com. “S&P 500 firms typically trade at 23 times earnings, compared with just 14 times in London.” 

Britain’s quiet IPO boom 

The private-equity bidding war is good for share prices. But it has also caused concern about the long-term health of the London market. If private firms delist some of Britain’s best businesses, then what will remain for ordinary investors?  

Not to worry, says Simon Foy in The Daily Telegraph. As quickly as firms are going private, plenty of new ones are coming onto the market. “Since the beginning of the year, 54 companies, with a combined market value of £53bn, have floated on the London Stock Exchange”. 

There is a widespread impression that the London bourse is “struggling”. That’s thanks to Deliveroo’s “high-profile flop” – shares in the food-delivery app plunged 26% after listing in March. But as Simon French of Panmure Gordon notes, “if you took an equal stake in each of the companies that have floated this year, your investment would be up by about a third in the year to date”, beating the wider FTSE All-Share’s gain of 7.8%.  

Investors are often warned against having a “home bias”, says David Brenchley in The Times. Almost half of British investors told a Quilter survey that “more than 50% of their investments were in the UK…One in 12 people with more than £60,000 invested admitted to having all of their investments in UK stocks”. Investors who failed to diversify globally have paid the price over the past decade as US markets soared while the FTSE stagnated, but that trend will reverse at some point. Remember that “for a long time before the financial crisis, UK stocks beat American ones”. It’s never a good idea to put all your eggs in one basket, but a touch of home bias looks a sound strategy for now.

Recommended

What is the pension lifetime allowance?
Pensions

What is the pension lifetime allowance?

If you have been saving into your pension for some time now - or were paying attention during Jeremy Hunt’s inaugural Budget - you may have heard the …
20 Mar 2023
Rightmove: UK house prices up £3,000 as property market rebounds
House prices

Rightmove: UK house prices up £3,000 as property market rebounds

Rightmove’s latest house price index shows the property market has been resilient despite an economic downturn
20 Mar 2023
How to get a council tax reduction
Tax

How to get a council tax reduction

Council taxes will go up next month, but some people can get a discount. We explain who can get a council tax reduction
17 Mar 2023
How much tax will you pay from April 2023?
Tax

How much tax will you pay from April 2023?

The Chancellor announced a series of tax changes and allowance freezes in his Autumn and Spring budget. We break down what these mean for you ahead of…
17 Mar 2023

Most Popular

Government plans could see NS&I boost interest rates
Savings

Government plans could see NS&I boost interest rates

The government-backed bank has a new funding target, which could prompt it to boost the rates on its Premium Bonds, ISAs and bonds.
16 Mar 2023
Share tips of the week – 17 March
Investments

Share tips of the week – 17 March

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages
10 Mar 2023
How to make your child a tax-free millionaire by age 37
Investments

How to make your child a tax-free millionaire by age 37

Exclusive research for MoneyWeek reveals how funding an ISA and a pension for your child until age 18 could build up a seven-figure sum by the time th…
14 Mar 2023