Looking further into 2024, we expect small and mid-cap listed companies to continue to be attractive, particularly to PE and overseas bidders, with UK public companies having comparatively low valuations to their US peers. Bidders in 2023 were particularly focused on listed companies in the technology, financial and healthcare sectors, and we expect that to continue in 2024, with AIM-listed companies presenting attractive opportunities.
Difficulties in valuation are likely to continue, and we may see increased shareholder activism (publicly and privately), as institutional investors baulk at quality UK assets being taken off the market at a valuation which they consider does not reflect the long-term prospects of the business.
With interest rates seemingly stabilising or having hopefully reached their peak, the cost of borrowing should become more certain in 2024, and bidders, particularly PE, should see greater access to (relatively) liquid debt markets. That, combined with a wealth of undeployed capital, is likely to result in a healthy amount of public M&A activity in 2024.
Regulation remains one of the biggest challenges for bidders. Practitioners will need to track the impact of the EU Foreign Subsidies Regulation on public takeovers where the target has an EU presence (EU turnover over EUR 500m and financial contributions over EUR 50m), and ‘Big Tech’ should be prepared for increased scrutiny by the European Commission under the EU Digital Markets Act and by the CMA’s new Digital Markets Unit.
Our verdict
Watch this space: it could be busy! As a hub for global businesses, London is offering attractive opportunities to buy them at relatively low multiples. Appetite may be tempered by inflation (and therefore interest costs) not falling as fast as hoped – but financial sponsors will continue to play hard (providing private credit as well as writing equity cheques) and we think many more companies will come off market this year than join it.
