UK Public M&A Update Q2 2023
13 July 2023
Overview
Interest rates at highest since 2008
In the UK, the Bank of England doubled down on its fight to bring inflation to target, raising its base rate by 0.5 percentage points in June to 5%, the highest level since 2008. The somewhat surprising decision by the BoE was in response to inflation remaining at a higher than expected 8.7% in May and in light of stronger resilience in the UK economy. Evidence in the currency markets suggests that investors remain focused on the potentially damaging effects that higher borrowing costs could have on the UK economy.
Execution remains a challenge for leveraged M&A
Against this uncertain outlook, the second quarter of 2023 saw a slight uptick in UK public M&A activity with 15 firm offers announced during the quarter. However, there was a noticeable drop in high value (over £1 billion) offers when compared to either 2022 or 2021. EQT/ADIA’s £4.5 billion offer for Dechra Pharmaceuticals was the highest value deal in the quarter and, excluding the Schneider Electric/AVEVA takeover, represents the highest value UK takeover in the last 12 months.
Whilst we are seeing PE return to the public markets, we are not seeing the same large scale leveraged M&A. Traditional banks remain constrained and so bidders are looking at smaller deals and alternative sources of financing. In light of this, it is noteworthy that a syndicate of banks (including Standard Chartered) provided funding for Brookfield's takeover of Network International and a syndicate of Canadian banks provided funding to Alpha Auto Group on the Lookers bid. Early syndication is becoming more common, despite restrictions under the Code.
Cash was the most common form of consideration offered to shareholders in this quarter, with the only share deal being LondonMetric Property's all-share offer for CT Property Trust. In the broader UK listed company space, we have recently seen listed companies offer consideration shares on other transactions, including by Rathbones on its proposed acquisition of Investec's UK wealth management business. It will be interesting to see whether the proposed loosening of the UK's prospectus rules will encourage more strategic M&A and share-for-share offers.
With ongoing market uncertainty and increased levels of shareholder engagement, we expect bidders to continue to offer innovative consideration structures to bridge valuation gaps such as deferred consideration (as with Prax's offer for Hurricane Energy) and unlisted or listed share alternatives (as with the consortia offer for Dignity).
In addition to acting as sponsor counsel to Bank of America on the acquisition by Rathbones of Investec's UK wealth management division, Ashurst's UK public M&A mandates in the last quarter include advising:
- Morgan Stanley and Bank of America on the £4.5 billion takeover of Dechra Pharmaceuticals by a consortium comprising EQT and ADIA;
- Rothschild & Co on: (1) the £48 million takeover of National Milk Records by Associated British Foods; (2) the £511 million takeover of Industrials REIT by Blackstone; and (3) the £62 million takeover of Xpediator by a consortium comprising BaltCap, Cogels Investments and Nuoma IR Kapitalas;
- Lazard & Co on the £410 million takeover of Numis Corporation by Deutsche Bank;
- Jefferies on the £269 million takeover of Medica Group by IK Partners; and
- Peel Hunt on the £93.4 million takeover of The Fulham Shore by TORIDOLL.
A summary of the key features of each announced offer is set out in a table in the Appendix of this publication which can be downloaded below.
Should you have any questions following this publication, please feel free to reach out to one of our team members.
