Dust off the defence manuals… private equity is coming, say advisors
London’s listed firms have been warned to dust off their defence manuals and prepare for takeover bids as private equity investors limber up for a deals offensive on the London Stock Exchange next year.
After a subdued year of dealmaking through 2024, private equity buyers are expected to reignite a swoop on the public markets in 2025 as an interest rate loosening cycle lowers the cost of financing deals and a gap in price expectations between buyers and sellers narrows.
Private equity firms have also been hamstrung by a largely shuttered IPO market over the past year, which has prevented large exits and scuppered their ability to deploy cash.
Of some £52bn worth of bids for London-listed companies since January, just 31 per cent have been led by prospective private equity buyers, according to a report from broker and investment bank Peel Hunt.
Corporates dominated the UK takeover landscape through 2024 due to lofty price expectations of target companies and a lack of appetite from listed firms to sell up at cut prices to private equity houses.
Some of the largest public M&A in the past 12 months has been led by big corporates, including the takeover of firms like Redrow, DS Smith and Virgin Money.
However, smaller companies and those listed on London’s junior market AIM have been warned to prepare for a takeover bonanza as private equity dealmakers look to capitalise on perceived cheap prices in London.
“Absent a change of events, it seems certain that 2025 will bring a major and sustained flow of UK takeovers,” said Peel Hunt’s head of M&A advisory, Michael Nicholson. “Bid defence manuals are no longer an item to be left on the shelf…they ought to be front of mind for all UK boards.”
Some £52bn worth of deals have been struck in London this year
Up to a third of AIM listed companies could be under threat of takeover in the next twelve months, Peel Hunt predicted in its report ‘Barbarians at the Gate’, a nod to the iconic 80s book on the takeover of RJR Nabisco.
A fresh wave of takeovers will pile new pressure on London’s junior stock market, which has shrunk at its fastest pace ever in the last 12 months as a torrent of firms have either struck deals or delisted.
However, deals advisors say that bigger firms could also be in the shop window after a spate of large deals involving FTSE 350 firms this year.
“One of the dynamics we’ve seen over the last year is that bigger transactions have been getting away,” said Antony Walsh, an M&A partner at Evershed Sutherland. “Those big transactions should still be there through 2025 and that mid market piece will continue to rebound through 2025, so you add that together, and 2025 is definitely going to be a better year.”
Smaller private companies are also weighing up their options and may be looking to sell up to private equity in the coming months, according to alternative lender ThinCats.
“Whilst some issues remain, we are in a relatively stable economic and political environment. As a result businesses are actively considering their growth plans which includes M&A,” said Ravi Anand, managing director. “This is supported by significant private equity funds dry powder.”