Analysis: BHP pursuit of Anglo American highlights corporate-led UK M&A upswing

Peel Hunt

30/05/2024 13:32

By Anousha  Sakoui, Amy-Jo Crowley and Lucy Raitano
       LONDON, May 30 (Reuters) - BHP Group's $49 billion bid
for Anglo American may have failed but the move highlights how
companies have been leading a charge to snap up UK assets as
they seek growth in a relatively undervalued market, bankers and
analysts said.
    "Bidder appetite has definitely accelerated especially among
the global corporates," said James Robinson, Head of UK &
Ireland M&A, at JPMorgan. "They've been running the slide rule
over UK plc for a long time but we are really seeing a pivot to
action. Do we continue to see more? The answer is yes."
    Besides BHP's bid for Anglo, International Paper 7.4 billion
pound bid for DS Smith, Quanex's 788 million pound deal to
acquire engineering firm Tyman and Barratt Developments 2.6
billion pound bid for Redrow highlights are among the companies
that have seized on UK prospects.  
    BHP's deal faltered because it couldn't get Anglo to agree
on the structure of its offer, a complex deal that involved
Anglo agreeing to spinning off two South African units. But
driving the offer upswing is the lower valuation of UK
companies, giving bidders access to growth in global markets but
at a fraction of the price, bankers said. 
    As at the end of April there were 38 companies under offer
in the UK, the highest number since June 2022, according to Peel
Hunt. And more of those companies are in the FTSE-100, the
analysts found. Take one deal out and the high water mark still
stands. 
    Had BHP Group gone ahead it would have been the largest UK
takeover since Takeda made a 45.3 billion pound bid for Shire in
2019. The UK market has been in the doldrums in recent years
like M&A globally, which had slowed after a record year in 2021,
as companies sat on the sidelines amid a surge in interest
rates. The first quarter of 2024 has already seen a rebound in
global dealmaking. 
    Now borrowing costs have peaked and the economic outlook is
improving, executives are making bolder strategic moves. 
    "We're seeing a lot more strategic-led deals, with shares
being used as consideration," said Kirshlen Moodley, head of UK
M&A at BNP Paribas. 
    While London's FTSE 100 index has reached record highs,
based on forward earnings it is still trading near its deepest
discount compared to U.S. markets. The FTSE's 12-month forward
price-to-earnings ratio trades at a discount of around 45%, the
widest since at least 1990. The FTSE also lags the pan-European
STOXX 600 and Germany's DAX.   
    "The velocity of public M&A deals is pretty unlike any
period I can think of in the recent past," said Geoff Iles, head
of UK M&A at Bank of America. "There's a sense of opportunity
given valuations and exchange rates and given there is less
competition from private equity at the moment." 
    But that dislocation in values has led in many cases for
bids to be fought out in public and to the pushing up bid
premia, bankers said.  
    The premium in UK bids completed in 2023 was 44%, well above
the long term median of 34.2%, according to BNP Paribas. 
    While activity from private equity funds has seen an uptick
with bids such as Thoma Bravo's $5.32 billion cash bid for
cybersecurity firm Darktrace, companies can take advantage of
the lack of competition as private equity activity remains below
historically low levels, bankers said.    
    UK-targeted financial sponsor related deals has reached 19.8
billion pounds, up from 12.2 billion pounds in the same period
last year but down from 42.8 billion pounds in 2022, according
to Dealogic data.     
    Private equity dealmaking has remained a lower share of
dealmaking as higher rates have made leveraged financing more
expensive.  
    The M&A market still faces uncertainty of higher interest
rates and economic uncertainty and now an election. "As the UK
general election approaches, some may opt to wait for greater
political clarity before launching their M&A processes," said
Gareth Camp, Partner at Clifford Chance.

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 (Reporting by Anousha Sakoui, Amy-Jo Crowley and Lucy Raitano;
editing by David Evans)
 ((anousha.sakoui@thomsonreuters.com;))