“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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
-
Cash ISAs: why it could be your last chance to grab 5% tax-free savingsSavers using a cash ISA could face a double-whammy of interest rate cuts and tax reforms from April. Should you act now?
-
Navigating the Trump tariffsMartin Connaghan and Samantha Fitzpatrick, Co-Managers of Murray International Trust PLC, discuss Donald Trump's tariffs.
-
Three companies that dominate their markets with critical productsA professional investor tells us where he’d put his money. This week: Charlie Huggins, manager of Wealth Club’s Quality Shares Portfolio, picks three stocks.
-
Should you continue to hold Smithson Investment Trust?Opinion Smithson Investment Trust, a small- and mid-cap fund, has struggled to live up to lofty expectations, says Rupert Hargreaves.
-
Primark owner Associated British Foods is an overlooked gem going cheap — should you buy shares?Associated British Foods, the owner of Primark, is a family-owned business, which means it is passed over by the increasingly popular passive investment funds. That spells opportunity for private investors, says Jamie Ward.
-
Trump's tariffs and a shrinking market for alcohol deal double blow to DiageoDonald Trump's tariffs are a further headache for drinks giant Diageo, which is already being buffeted by a decline in alcohol consumption.
-
Three stocks in recruitment companies with promising recovery playsRecruitment agency Robert Walters and its peers are struggling, but now's the time to buy, says Rupert Hargreaves
-
Four UK data companies to buy nowCompanies that create, harness or turn data into a valuable offering could be sitting on a hugely profitable gold mine. Rupert Hargreaves picks four of the best UK data companies to buy now.
-
What’s the outlook for the shipping industry in 2025?All we know for certain about the year ahead is that it will be volatile. But the container shipping sector thrives on choppy waters
-
What investors can expect from stocks and the economy in 2025There are reasons for investors to be hopeful about 2025, with slowing interest rates and moderating oil prices. But trouble may be brewing in bond markets
