UK M&A fuelling 'relentless' de-equitisation drive

investmentweek.co.uk:

With 40 transactions worth more than £100m in 2023, Hall noted that the pace had increased throughout the year, as there had been jus three offers announced in Q1 2023 compared to 18 in Q4.

In a note from Charles Hall, head of research at the investment bank, he warned that UK M&A activity had accelerated towards the end of 2023 and is set to continue into 2024, which could lead to fewer publicly listed companies.

Shareholder activism and M&A surge is a mixed blessing for investment trust sector

He argued that the «key driver» of this problem had been the 30 consecutive months of outflows from UK funds, leading to selling pressure and declining valuations.

«The negative trend is self-fuelling, as the poor performance of UK equities makes them appear less attractive to fund managers and retail investors, the reduction in liquidity reduces appetite from overseas investors, and reduced capitalisation impacts on index weightings,» he explained.

Hall noted the pace of dealmaking had increased throughout the year, as there had been just three offers announced in Q1 2023 compared to 18 in Q4.

None of these came at the large cap end, with only three in the FTSE 250 and the bulk of the deals occurring at the other end of the capitalisation spectrum, with 13 in the FTSE Small Cap and 20 on the AIM.

Overall, there were 40 transactions worth more than £100m in 2023.

The two smaller indices saw 8% and 9% of their market value eliminated by acquisitions in the year, respectively. Over the last five years, the FTSE Small Cap alone has seen its market cap reduced by about 50%.

«This is a precipitous decline that is considerably weakening the ecosystem around smaller companies, as well as impacting the available funds to support growing