UK stock market becomes M&A hotspot in 2024

Takeover activity is back driving valuations as targets such as DS Smith (LSE:SMDS) and Spirent Communications (LSE:SPT) make the UK the second-hottest country for M&A.

LSEG Deals Intelligence today said the value of mergers and acquisitions with any UK involvement is up 88% so far in 2024 at $76.1 billion (£60.3 billion).

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It added that bid interest focused on UK firms accounted for 7% of global M&A in the year to date, only beaten by the US and up from 4% this time last year when the country was fifth on the list.

The research shows M&A involving a UK target was more than double the value recorded during the same period in 2023 following a 167% increase in domestic M&A and a 118% increase in inbound deals.

The trends continued today when Spirent Communications switched its support to America’s Keysight Technologies Inc (NYSE:KEYS) after an approach 15% higher than one by Arizona’s Viavi Solutions.

The backing means Spirent’s shares have risen by more than 85% since it entered the takeover spotlight earlier this month. However, the offer price is still a long way short of the 281p level for its FTSE 250-listed shares at the start of 2023.

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Spirent chief executive Eric Updyke told investors today that the “broader reach and expanded long-term prospects” under New York’s Keysight would be welcome at a time of continued challenging market conditions.

Other recent targets include packaging firm DS Smith, whose recent merger deal with Mondi (LSE:MNDI) is under threat after an all-share approach worth 415p a share or £5.7 billion by American firm International Paper Co (NYSE:IP).

The takeover deals in recent weeks also include those involving logistics firm Wincanton (LSE:WIN), the housebuilder Redrow (LSE:RDW) and Virgin Money UK (LSE:VMUK) after an approach by Nationwide.

Deals Intelligence said 45% of UK target M&As were from a bidder overseas, adding to the impression that UK companies are seen as undervalued compared with the multiples in the US and Europe.

A period of relative stability as inflationary pressures have eased and interest rates steadied is also underpinning the stronger period for mergers and acquisitions in the UK.

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LSEG Deals Intelligence senior manager Lucille Jones said: “For now, with improved confidence, CEOs and boards are taking advantage of this period of calm ahead of the general election to make their moves”.

Private equity firms are among those seeking to capitalise on the conditions after announcing $4.6 billion (£3.6 billion) worth of deals targeting UK companies so far during 2024.

This is 39% more than last year at this time, but lower than the value recorded during each of the previous four years.

The value of UK outbound M&A has also declined 14% year-to-date, to a five-year low of $14.3 billion (£11.3 billion).

One UK company bucking this trend has been industrial products firm Diploma (LSE:DPLM) after yesterday’s £236 million swoop for New York-based Peerless Aerospace Fastener.

It has delivered strong growth from the £1 billion spent on 37 businesses over the past five years, with shares now in the FTSE 100 index after doubling since 2020 to a record 3,750p.