How you can cash in on DEAL MANIA

An astonishing £52billion worth of UK-listed businesses have succumbed to bids or mergers in 2024, in a feeding frenzy of deals that provokes concern – but also indicates an opportunity.

The shrinking of our stock market is bad news for the economy – the pace of departures is the fastest for a decade.

But the payback for investors from takeover mania can be gratifying, suggesting that British shares are worth a bet now.

So, enough of Black Friday and its often-so-so bargains. Is this the area where you could make a mint, especially given this week’s forecast from the Swiss fund management group Pictet that the UK market could be less adversely affected than the rest of Europe by the Trump administration’s tariffs policy?

Trade buyers and US private equity groups are eager to indulge their appetite for businesses that appear irresistibly cheap and may not stay that way.

The 45 companies that have been swallowed up include the packaging company DS Smith, cybersecurity group Darktrace, the financial platform Hargreaves Lansdown and the bank Virgin Money.

Carlsberg’s £3.3billion purchase of Britvic is being investigated by the Competition and Markets Authority watchdog.

But the year’s most controversial transaction is Czech billionaire Daniel Kretinsky’s campaign to seize control of the Royal Mail owner IDS in a £3.6billion deal.

Why is UK plc so alluring to predators? Ian Lance and Nick Purves, managers of the Temple Bar investment trust, say that shares have been ground down by short-term pessimism – and by UK pension funds preferring to put money into the US and other markets.

So enticing are the bargains that have been produced that would-be bidders are not putting their plans on hold for Christmas. The ‘takeover juggernaut keeps on trucking’, in the words of Dan Coatsworth, analyst at broker AJ Bell, with a spate of offers for household names and more obscure firms in past days.

Yesterday, the insurer Aviva moved closer to winning control of embattled rival Direct Line with a £3.6billion offer. The combined group will control one-fifth of the motor insurance market.

The rumoured interest from several parties in ITV could turn into a tense drama, amid the perception that there is ‘trapped value’ in its studios arm which delivers shows as diverse as Love Island and Coronation Street.

Also, the success of ITV X, its streaming service, has confounded expectations. The belief that the takeover talk could now be credible has led one analyst to speculate that ITV could be worth £4.5billion, against its current market capitalisation of £2.7billion.

Suitors are also lining up for smaller enterprises. The Australian asset manager Macquarie has offered £700m offer for Renewi, the London-listed Belgian waste disposal business.

Meanwhile, the FTSE 250 engineering firm TI Fluid Systems is to be acquired for £1billion by a Canadian competitor ABC Technologies, which is owned by the £250billion US private equity giant Apollo Global Management.

It has also been revealed that the AIM-listed gold mining company Metals Exploration is snapping up Condor Gold for about £67.5m. Metals Exploration is backed by the investment vehicle of Nick Candy, the property developer famous for the One Hyde Park super-luxe apartment scheme in Knightsbridge, and his marriage to actress and singer Holly Valance.

If you are checking your portfolio for exposure to this spending spree through individual stocks, funds and trusts, be aware that a bid approach may not culminate in an investor bounty.

Lance and Purves point out that two holdings in their trust’s portfolio – Anglo American and Currys – have fended off attempts to curtail their independence.

Currys argued that a £757m offer from US activist investor Elliott Partners was far too low.

A fair contention, it seems, since the share price of the electrical retailer is now 73 per cent higher than a year ago. There is also mounting disquiet among fund managers over what they see as the paltry sums being paid by predators – which should also raise the ire of private investors.

There is particular dismay over one business. The cafe bar company Loungers is to be bought for £338m by New York private equity player Fortress, whose past UK acquisitions include Curzon Cinemas, Majestic Wines, Poundstretcher stores and Punch pubs.

Axa Investment Managers is just one of the shareholders who are unhappy. Nick Hawthorn, manager of the Downing Strategic Multi-cap fund, argues that the 310p-a-share being paid by Fortress represents a ‘derisory 30 per cent premium’ on the Loungers share price, which was hard hit by the Budget’s employer National Insurance raid and other measures. Loungers disputes these claims.

Yet they should serve as an alert to anyone who wants to make the most of bid and merger mania but who does not want to be short-changed. This is our guide:

Where to invest

Cashing in: Nick Candy and wife Holly Valance

So attractive are the valuations of UK shares at present that some analysts argue that ‘everything is for sale’.

This assessment may be an exaggeration. Yet it will heighten the focus on names whose shares have fallen in past months such as the convenience store chain B&M, the drinks group Diageo and the bank Schroders – its price is down by 27 per cent this year.

US buyout company Advent is, reportedly, poised to pounce on Tate & Lyle, the flavourings group.

Since it is difficult to tell whether such reports are speculation or fact, it may be wise to put some cash into a UK trust or fund gives you a stake in the action – and a chance for future appreciation. Suitable choices include Fidelity Special Situations, Fidelity Special Values, Jupiter UK Dynamic and Temple Bar – which is my pick.

Trusts that could pay dividends

There has already been a large amount of consolidation in the investment trust sector. The Alliance and Witan trusts got together to form Alliance Witan which joined the FTSE 100 this week. If you are ready for adventure, James Carthew of QuotedData suggests renewable energy trusts, such as Bluefield Solar, Greencoat Renewables or NextEnergy Solar.

Some of their share prices are at a discount of 30 per cent to the net asset value (NAV), making them a possibly enticing target. Greencoat also provides a 7.8 per cent dividend yield – some consolation if a predator fails to appear on the scene.

Have your cake and eat it, too

Ben Yearsley of Fairview Investing is not a fan of investing in a share simply because a bid could appear. He says: ‘I tell my clients that you should buy what you normally buy, based on the company’s credentials and prospects.’

If a bid materialises, this is the icing on the cake.

He continues: ‘Standard Chartered has been the subject of takeover rumours for about three years. None has materialised.

‘If you invested three years ago, believing this to be a bank that could make a comeback, you would have been rewarded with a share price rise of 126 per cent and enjoyed dividends along the way. What’s more, the share price could advance by a further 20-30 per cent.’

Don’t rely on a bid

The luxury goods industry is set for consolidation, its Asian clientele having become reluctant to spend. But companies seeking to make acquisitions in this sector can prefer a brand that is on its way to revival, rather than starting on the journey.

This means holders of the iconic British fashion house Burberry (like me) may need to be forbearing as it tries to retain its style credentials through ads featuring Oscar-winning actress Olivia Colman, Chelsea and England footballer Cole Palmer, and Alex Hassell and David Tennant, stars of Disney+ series Rivals.

For the moment, the handbag maker Mulberry has evaded the clutches of Fraser founder Mike Ashley. Yet close attention will be paid to the success of boss Andrea Baldo’s drive to remodel the business. ‘Watch and wait’ should be your motto.

What to do in the case of a bid

It is tempting to be dazzled by an offer for a company in which you hold shares, especially if it is pitched at 20-30 per cent above the share price.

But the offer may not necessarily reflect the company’s prospects. Most bids are cash only. But if there is a mix of cash and shares, you have to weigh up whether you consider the bidder worth backing.

If you hold your shares through a platform, you will receive information about the bid and be able to sell your shares without a fee if the offer is approved by the company’s board and so become official. If the shares trade at about the level of the bid, it may be worth selling before this time in case the deal is derailed.

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