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Despite further pandemic-based restrictions and the ongoing uncertainty surrounding Brexit, January 2021 showed signs of a continued return to ‘normalcy’, after deal volume plummeted in H1 2020 before picking up again H2 2020. The new year kicked off with 4 firm offers and 3 possible offers, compared to just 1 firm offer and 2 possible offers over the same period in 2020. This increase is in line with the predictions in our 2020 Public M&A Trend Report, and has been attributed to a variety of factors, including an excess of capital to deploy by private equity firms.
Notably, all possible offers and all but one firm offer were made by US bidders. The remaining bid was a £25.2 million cash and shares offer by UK property company, The Property Franchise Group, for Hunters Property, following a possible offer announced in December 2020. The offer represents a 4% discount on Hunter’s share price as of the last practicable date before the announcement on 28 January 2021 and the news saw Hunters’ share price drop over 10% following the announcement. The boards of both property companies stated that the deal provides ‘compelling value for Hunters Shareholders and potential for TPFG Shareholders in the context of a potentially challenging housing market and broader macro-economic uncertainty as a result of the Covid-19 pandemic’.
Another offer that follows on from a previously announced possible offer is Global Infrastructure Partners’ £3.4 billion offer for FTSE 250 Signature Aviation. The offer takes place against the backdrop of 2 potential competing offers, being private equity group, Carlyle Investment Management, as well as a joint offer from private equity firm Blackstone and Bill Gates’ Cascade Investment, who also have a 19% stake in Signature Aviation. Initially, Signature Aviation stated it would be ‘minded to recommend’ Blackstone’s £3.15 billion offer in December, before Global Infrastructure Partners topped the offer. For more on this story, see Global Infrastructure Partners take the lead on Signature Aviation bid. Both possible bids are still ongoing, and we are yet to see whether an actual competing bid will be made.
Also amongst the US bidders is engineering and manufacturing company Schweitzer-Mauduit International, who made a £403 million cash offer for UK healthcare manufacturer, Scapa Group. The offer represents an 18.6 % premium to the closing price of the shares as of 26 January (the last business date before the announcement). News of the takeover saw Scapa’s shares closing 25% higher at 220 pence per share on the day of the announcement. The takeover comes after Scapa reported a 24% decline in revenue in its interim results in November 2020, which the AIM 50 company attributed to a fall in demand due to the pandemic causing elective surgery postponement and reduced footfall. The disruptions to Scapa caused by the pandemic also resulted in the announcement of a £30 million placing in May 2020 in order to ‘strengthen the Group's balance sheet and provide flexibility to support future growth initiatives post-COVID-19’. Commenting on the offer, the Scapa board cited risks resulting from the pandemic, impacts from the loss of its key ConvaTec contract in 2019, as well as a significant opportunity to enhance inorganic growth as a larger group and access to new markets, amongst their reasons in recommending the acquisition. The board stated that the offer ‘represents compelling value given the balance of future opportunities and risks facing the business, limited capital market liquidity resulting in share price volatility and provides an opportunity for Scapa Shareholders to crystallise, in cash, the value of their holdings’.
On 25 January, US private equity firm, Flexpoint Ford made its first UK investment, announcing a firm offer for UK private wealth management firm, AFH Financial Group plc. The offer values AFH at £225 million and represents a 16.5% premium as to AFH’s closing price on the last practicable day before the announcement. The announcement also saw AFH’s share price increase by 15%. AFH highlighted that it had faced challenges in recent years in accessing debt funding and equity capital on the public markets, which has, in turn, slowed down its growth. Commenting on the offer, Steven Begleiter, managing director of Flexpoint stated: ‘We believe that the UK wealth management market is currently undergoing an important transition, as regulatory and demographic trends are driving increasing demand for high quality financial advice that can be met by IFA firms with a long-term and client-centric view. In addition, the market is highly fragmented, which provides an opportunity to service customers better and create value through consolidation.’
Flexpoint’s debut UK investment, alongside the influx of US investors in January 2021 continues the uptick in foreign investment we noted in 2020, which saw foreign bidders accounting for 55% of all firm offers. The comparative lack of UK bidders may come as no surprise, in light of the depressed UK market, and the continuing uncertainty surrounding Brexit. Conversely, US investors are less impacted by this and continue to seek out ‘bargains’, with US bidders specifically accounting for 45% of firm offers in 2020.
Furthermore, as the pandemic’s ‘winners’ and ‘losers’ become clear, we expect to see increased activity for in-demand assets such as those in healthcare, technology, or finance industries. On the other hand, distress may also factor in the uptick of deals as companies need to consolidate resources or are targeted for ‘bargains’.
For more on the trends and developments in the public M&A market in 2020, see our Market Tracker trend report: Trends in UK Public M&A 2020. Market Tracker will also follow up on these trends in its Q1 2021 update.
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Market Tracker is a unique service for corporate lawyers housed within Lexis®PSL Corporate. It features a powerful transaction data analysis tool for accessing, analysing and comparing the specific features of corporate transactions, with a comprehensive and searchable library of deal documentation across 14 different deal types. The Market Tracker product also includes news and analysis of key corporate deals and activity and in-depth analysis of recent trends in corporate transactions.
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