Proactive Investors - The markets certainly went off with a bang this week, at least in comparison to the barren wasteland that is the Square (NYSE:SQ) Mile in 2023.
To recap, fintech mid-cap Network International Holdings PLC confirmed a bid proposal from a consortium comprising CVC Advisers and Francisco Partners Management.
Network International said it is “minded to recommend” the 387p per share offer to shareholders if it receives a firm bid.
Shortly thereafter, news broke that e-commerce retail group THG PLC (LON:THG) had received a preliminary bid approach from Apollo Global Management (NYSE:APO).
Apollo also has its claws out for John Wood Group, making a bid of 240p per share, marking the fifth approach for the FTSE-250 engineering company, because Apollo apparently doesn’t take no for an answer.
Today’s spate of PE-led takeover proposals adds to Swedish firm EQT’s £4.6bn bid for veterinary pharmaceuticals group Dechra Pharmaceuticals (LON:DPH) on Friday, while further down the value chain, Industrials REIT agreed to a £511mln takeover bid from Blackstone (NYSE:BX) Group on the same day.
It appears that London’s substantially cheaper capital markets valuations are coming home to roost, with dry powder-rich PE managers catching a whiff of a market rebound and making bids while the going is still cheap.
"There is a sense among international investors that the UK is ripe with takeover targets," said Victoria Scholar at interactive investor.
"The recent rebound for the pound suggests opportunistic buyers need to make the most of sterling’s weakness before it appreciates further and is too late as the FX discount subsides," she added.
We don’t know the exact terms, nor do we know the degree of leverage, applied to these buyouts, but it doesn’t take a conspiracy theorist to surmise that the deals are probably stacked with debt collateralised by the target entities’ assets.
A risky move (for the targets at least), but if we truly are heading into M&A season, the upside is that, in a few years, we’ll see a groundswell in initial public offerings as CVC, Apollo and the like seek to turn their investments into riches.
What about the short term?
Should these recently announced LBOs prove a hit, there will likely be a sustained trend of take privates as the PE vultures peck at London’s undervalued plcs.
This seems porobable, given that Apollo today announced the opening of a new office in London, “strengthening its presence in Europe and building on the firm’s successful track record in the region”, per the US group’s announcement. Or positioning it well to gobble up more comparatively cheap takeover prospects.
On the one hand, it’s promising to see international investors acknowledging the value in UK mid-caps. On the other hand, accepting predatory offers will only cause more harm to the already embattled Square Mile.
Network International was seeking a 400p offer according to Jefferies, 13p higher than the one it got, though to be fair to the consortium, 387p represented a 28% premium to Friday’s closing price.
Meanwhile, Apollo’s offer for John Wood represented a 13% premium. The firm’s THG proposal is not currently known, though one would expect it to be above 170p, a price rejected by the retailer around 10 months ago and something like a 100% premium on the current spot price.
Will the London M&A open season bring an end to the Square Mile drought? Perhaps, but three years is a long time to wait in any case.