Ultra-Electronics’ bid means value of ‘take private’ deals more than doubles to £28.6bn in a year as PE looks to stock market for value

London — The value of UK ‘take private’ deals has more than doubled in a single year, rising from £9.4bn in 2020 to £28.6bn this year (12 months to July 23 2021) as private equity firms increase their focus on the UK stock market, says Mayer Brown, the global law firm.

The 204% increase in the value of take private deals has been significantly boosted after two major deals. FTSE 100 supermarket chain Morrisons accepted a £6.3 billion takeover bid from US private equity firm Fortress. Defence group Ultra Electronics has recommended a £2.6 billion offer from private equity-owned Cobham.

Mayer Brown says competition between PE funds for deals remains high and many of the more obvious unlisted candidates for buyouts have been approached in the last decade.

With investors in private equity firms eager to invest large amounts of capital and catch up after a quiet first half of 2020, more firms are turning to the London Stock Exchange to find acquisition targets. The number of take private deals this year (24) is more than double the number that occurred in 2018/19 (10), 2018/17 (10) and 2017/16 (9). 

Part of the reason why UK stocks are attracting so much attention from private equity houses is that they have underperformed other major markets. Over the last five years to 30 June 2021 the FTSE 100 has grown 8.3%, far lower than the German DAX 30 (63.4%), French CAC 40 (56.5%) and the US S&P 500 (107%) over the same period. This has led to some UK-listed businesses being considered undervalued. The relative weakness of sterling is another contributing factor.

The pandemic means there are also more listed businesses whose profitability has taken a blow from lockdown, meaning their shareholders and management might be more willing to accept a bid at a premium.

James West, PE lawyer and partner in the Corporate & Securities practice at Mayer Brown, says: "Competition for large unlisted companies is now so fierce that more PE buyers are willing to take on the extra regulatory and reputational challenges of acquiring a large, listed company."

"For those listed companies that have run into trouble during the lockdown, a PE deal would look attractive. They’ll have the opportunity to restructure their business away from the glare of public scrutiny that some listed companies have to operate under."

"While valuations have soared in US markets, the UK stock market has grown at a far slower pace over the last five years. This has caught the eye of private equity firms hungry for deals."

Four of the take private deals in the last year have targeted real estate companies including a bid for retirement home operator McCarthy & Stone by Lone Star Funds for £647m in February 2021 and Blackstone’s £1.2bn acquisition of St. Modwen Properties, agreed in May 2021.