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The depreciating value of the pound puts a large number of British companies at risk of being sold to American predators
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The depreciating value of the pound puts a slew of British companies at risk of being sold to American predators.
Blue chip companies, including gambling group Entain, packaging company DS Smith and telecom giants BT and Vodafone, are all now vulnerable to foreign corporate raiders, according to experts at broker Canaccord Genuity.
Major brands in the FTSE250, including gambling company Playtech, cybersecurity outfit Darktrace, Greggs, MoneySuperMarket and data analytics firm Ascential, are also in the firing line.
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The market turmoil has plunged the value of many companies listed on the London Stock Exchange. And the pound’s depreciation after the mini-budget has made UK businesses look like bargains to foreign opportunists.
However, enthusiasm for cheap assets may be dampened by the rise in interest rates, making it more expensive for private equity firms to fund deals.
Until recently, there has been a wave of private equity bids on big names, including supermarket groups Asda and Morrisons and defense firm Ultra Electronics.
Listed foreign companies, including France’s Schneider Electric – which has made an offer for software company Aveva – have also been on the prowl in the UK.
Canaccord’s Graham Simpson said that as the UK stares at ‘the course of a recession’, bidders will look for companies with strong cash flows, high profit margins and low debt that ‘could weather inflation and interest rate storms’. He added: “Private equity can struggle to raise funding. That’s why we think we’ll also see a potential wave of corporate mergers and acquisitions. Valuations in the UK were very attractive, even before the dramatic decline of sterling.’
Entain, owner of Ladbrokes, has been targeted by several analysts and brokers. The stock has fallen by a third this year.
A source in the city said: “Entain is definitely a target and MGM – with which Entain has a joint venture – is still eyeing the company. It’s definitely more vulnerable now that it’s cheaper.’
Another said, “Entain is probably a target because it’s gaming that is relatively recession-proof.”
The source added that Darktrace — for which US private equity firm Thoma Bravo recently withdrew from a bid — was still a likely candidate. Vodafone could be attractive to a US buyer, the source added. “Darktrace has been battered since it went public, so it would make sense, and Vodafone could happen at some point. Although Vodafone is very large and very political, if someone did, an American buyer would come in.’
Analysts said acquisitions of telecom companies such as BT and Vodafone, while tempting, would be complex.
“We see companies active in food and health and beauty as acquisition candidates,” said another source. “You probably see big players like Coca-Cola, Pepsi and McDonald’s looking for British targets for a small price.”