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Dame Amanda Blanc enjoyed a moment of reflection. As she sat down for her Christmas lunch with her family, the chief executive of the FTSE 100 insurance company Aviva knew she had pulled off one of the biggest takeovers of 2024.
Barely 48 hours before the stock market shut down for the festive season, Aviva had announced a £3.6 billion acquisition of its smaller rival Direct Line to bolster its position in car and home insurance.
It was not the only transaction squeezed into the small trading window before the two-and-a-half day closure of the stock market, which reopened on Friday.
On Christmas Eve, a deal at the other end of the size spectrum was pulled off when the maritime analysis business chaired by the former BP chief executive Lord (John) Browne sold itself to a private equity company. Windward received a price tag of £216 million from a private equity fund based in San Francisco, FTV Capital.
Those deals capped off what has been a busy year for mergers and acquisitions on the London stock exchange. While it means that the bankers, lawyers and accountants who advise on the transactions can enjoy a bonus bonanza after raking in £2 billion of fees, it has sparked a debate across the City about the stock market.
While mergers and acquisitions are a crucial generator of activity in the markets, and not at record levels, the deals are taking place when new companies are not arriving: three times as many companies have left the market than new ones have joined through initial public offerings (IPOs). City sources reckon that London-listed companies will continue to attract bids in 2025. So why is this happening and which sectors look most vulnerable?
Up for sale
For some who work in the markets, it feels as Britain plc is up for sale — and on the cheap. One in twenty listed companies received a takeover offer in 2024, the highest since 2019, and have fetched unusually large valuations compared with their share prices.
Charles Hall, head of research at the broking firm Peel Hunt, said the common theme of the deal activity was the price: a company listed in London would usually expect to sell for a 30 per cent premium to its share price, while deals of late have had an average premium of 45 per cent.
Indeed, for some companies which have been taken over, the agreed price has been double the value they were trading at, notably the logistics business Wincanton, which after a bidding war sold to GXO Logistics for £600 million — a 104 per cent premium. On Aim, London’s junior market, the African-focused mineral sands producer Base Resources sold out for over one and half times more than its stock market price, fetching a 188 per cent premium in its £200 million takeover by Energy Fuels.
“You have got willing buyers because the market is really cheap and willing sellers because a lot of companies are willing to engage with buyers — and shareholders who are happy to encourage a bid,” said Hall.
Of the deals which took place in 2024, the largest was the £5.7 billion takeover of FTSE 100 packaging giant DS Smith by the Canadian rival International Paper, according to Peel Hunt.
IDS, Royal Mail’s owner, has received a £3.6 billion bid while Darktrace, formerly led by Poppy Gustafsson, was sold for £4.33 billion
CHRISTOPHER FURLONG/GETTY IMAGES
Other big deals included the £5.4 billion private equity swoop on investment platform Hargreaves Lansdown and IDS, owner of the Royal Mail, getting a £3.6 billion bid from a company owned by the Czech entrepreneur Daniel Kretinsky. The tech business Darktrace, backed by the late Mike Lynch, was sold to the private equity firm Thoma Bravo for £4.3 billion, while Virgin Money was bought by Nationwide Building Society for £2.9 billion in an audacious move by the mutual lender.
What’s next?
As far as Hall is concerned, this assault on the London market will continue: “It’s difficult to say which companies aren’t acquisition targets.”
A number of factors are a play. First, London provides a more stable political backdrop for mergers and acquisitions because of Labour’s resounding election victory in July. Contrast that with France and Germany. President Macron in France is struggling to get a budget through the divided parliament, while in Germany an election is due in February after its coalition government collapsed.
“The UK is going to be in vogue because it’s cheap and because it’s [politically] predictable,” said Hall.
Second, private equity firms are sitting on $2.62 trillion of “dry powder” — money which has been raised and which is yet to be deployed on investment — a record sum, according to S&P Global Market Intelligence and the researchers Prequin. That said, in 2024 just a third of the bids in London were from private equity firms, one of the lowest proportions since 2019, with expectations they will use their fire-power to pounce in 2025.
Lower interest rates should provide the conditions that private equity bidders need to finance their takeovers, as even though the Bank of England kept interest rates at 4.75 per cent a week ago, rates will fall further during 2025.
Peel Hunt reckoned that smaller companies listed on Aim are most vulnerable to private equity takeovers, with a third of the companies with a market value of between £50 million and £250 million potential targets.
Third, companies are starting to look to bid for each other to achieve scale, with Aviva’s bid for Direct Line the latest example of this. Housebuilders Barratt and Redrow made a similar move.
An unknown factor is how American companies will behave once Donald Trump returns to the White House next month.
US buyers have dominated UK takeovers, fuelled by the strong dollar and cultural ties.
The law firm A&O Shearman recently published a report predicting that Trump’s deregulation policies will boost American companies so much that they will feel ever more confident in making acquisitions abroad. At the stockbroker Cavendish, John Farrugia, joint chief executive, agrees: “Companies [in the States] have a lot of cash on their balance sheets and we’re seeing a lot of interest coming from the US”.
Others counter that US firms will be more likely to hunt for growth at home in a Trump-fuelled economy rather than risk investing in companies from a moribund economy like the UK.
New arrivals
While mergers and acquisitions are part of the general rhythm of markets, sources in London worry that the departure of companies is creating a crisis for the stock market as new companies are not arriving to float.
Historically, when British companies are sold, investors plough the proceeds back into younger companies as they float on the stock market. This time around, with IPOs being few and far between, that has not been happening.
Tim Cockroft, executive chairman at the broker Singer Capital Markets, reckoned this would be a key factor to watch in 2025. “The big question is when will fund flows get reinvested? Typically when you see M&A that drives capital markets because the money is invested back in. We haven’t seen that yet.”
There are tentative signs of change, as last month flows into domestic equity funds turned positive for the first time in 42 months.
Indeed the professional services firm PwC reckoned that 2025 could be a better year for IPOs after companies had started to file for listings, notably the Greek metals and energy business Metlen which is aiming for a slot in the FTSE 100.
Vhernie Manickavasagar, partner in UK capital markets at PwC, said: “Preparations for a number of significant IPOs are already underway, providing momentum for what is hoped to be a big year for the UK markets in 2025.”
Meanwhile, for executives such as Blanc at Aviva, the M&A will be the easy part. The next key challenge will be to make sure they can make their acquisitions work.
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