UK Public M&A Trend Report update—1 July–30 September 2018

25/10/2018

Lexis®PSL Corporate and Market Tracker has conducted research to examine the current trends in UK public M&A for the period 1 July 2018 to 30 September 2018.

 Background and approach

Lexis®PSL Corporate and Market Tracker has conducted research to examine the current trends in respect of UK public M&A. Data for this report has been sourced from the Market Tracker transaction data analysis tool which allows users to access, analyse and compare the specific features of numerous corporate transactions. This is an update to our Market Tracker Trend Report—Trends in UK Public M&A deals in 2017 in which we examined firm and possible offers announced in 2017.

 

For the purposes of this update we analysed the period between 1 July 2018 to 30 September 2018 (Q3 2018). While comparisons have been made to the corresponding period in 2017 (1 July 2017-30 September 2017) (Q3 2017), definitive conclusions can only be made on the completion of the full year trend report of 2018.

We reviewed a total of 25 transactions that were subject to the Takeover Code (Code): 14 firm offers (eight for Main Market companies, six for AIM companies) and 11 possible offers, made up of nine possible offers (eight for Main Market companies and one for an AIM company) and two formal sale processes (FSP) (for two AIM companies).

The percentages included in this update have been rounded up or down to whole numbers, as appropriate.

Possible offers (made under Rule 2.4)

During Q3 2018, a total of 11 targets had an offer period begin with either the announcement of a possible offer or an FSP.

Nine offer periods began with a Rule 2.4 announcement. Of these:

• five (56%) progressed to a firm offer during Q3 2018, of which:

◦ two (40%) progressed to firm offers during their initial PUSU deadline (possible offers for esure Group plc by Bain Capital Private Equity, LP and John Laing Infrastructure Fund Limited by Dalmore Capital Limited and Equitix Investment Management Limited)

◦ three (60%) progressed to firm offers within extended PUSU deadlines (possible offers for Cambian Group plc by CareTech Holdings plc, Sinclair Pharma plc by China Grand Enterprises, Inc and its affiliate company Huadong Medicine Co., Ltd and Vedanta Resources plc by Volcan Investments Limited)

• two (22%) terminated during Q3 2018, of which:

◦ one (11%) terminated prior to the initial PUSU deadline (possible offer for Phaunos Timber Fund Limited by CatchMark Timber Trust, Inc.)

• one (11%) terminated within the extended PUSU deadline (possible offer for Carclo plc by Consort Medical plc)

• two (22%) possible offers were ongoing as at 30 September 2018 (possible offers for RPC Group plc by Apollo Management, LLC and RPC Group plc by Bain Capital Private Equity, LP)

Two FSPs were announced in Q3 2018 and remained ongoing as at 30 September 2018 (FSPs by Science Group plc and Realm Therapeutics plc)

During Q3 2018, one company, RPC Group plc, was the subject of two competing offers, both of which were from US private equity funds (namely, Apollo Global Management, LLC and Bain Capital Private Equity, LP). Both offerors were granted a PUSU extension outside Q3 2018.

Firm offers

Schemes of arrangement remain the preferred choice of structure with 10 out of 14 (71%) firm offers announced in Q3 2018 structured as schemes and four out of 14 (29%) structured as contractual offers. During Q3 2018, there was one transaction that saw a switch in deal structure. This was the recommended offer for Harvey Nash Group plc by DBAY Advisors Limited, which switched from a scheme to a contractual offer. The offeror subsequently acquired additional shares in the target, thereby triggering a mandatory offer under Rule 9 of the Takeover Code. There was only one hostile offer in Q3 2018 (offer by Stafford Capital Partners Limited for Phaunos Timber Fund Limited).

Note also that, although not within scope of this update, there was another switch in structure by Twenty-First Century Fox, Inc. (Fox) in relation to its offer for Sky plc (Sky) — Fox switched the deal structure from a scheme to a contractual offer in August 2018.

The offer for Randgold Resources Limited by Barrick Gold Corporation was the largest deal during Q3 2018 (£4.64 billion) and the smallest deal was Kerridge Commercial Systems Group’s Limited £11.85 million offer for Electronic Data Processing plc.

Despite deal volume being higher in Q3 2018 compared with Q3 2017 (14 firm offers compared with 11 firm offers in Q3 2017), the aggregate deal value was slightly lower.

The aggregate deal value recorded in Q3 2018 was just over £13.4 billion, which is almost a 1.2% decrease on the aggregate deal value in Q3 2017 (£13.5 billion).

Of the 14 firm offers recorded in Q3 2018, four (29%) had a deal value of £1 billion or higher, this is an increase to the number of £1 billion plus deals announced during Q3 2017 (18%).

There was one mid-sized deal (ie, firm offers that fell within the £200 and £600m deal value range) (Cambian plc offer by CareTech Holdings plc), which is a decrease comparable with Q3 2017 (where there were four deals in this deal value range).

The average deal value for Q3 2018 was £956.5 million, which represents a 22% decrease on the average deal value recorded in Q3 2017 (£1.2 billion).

Schemes remained the preferred structure for bidders. However, there was a slight increase in the proportion of transactions structured as contractual offers (8% by deal value in Q3 2018 compared with 3% in Q3 2017).

One out of five of the largest offers was from a UK incorporated company. UK bidders were also active in smaller deals during Q3 2018. However, overall, non-UK bidders outnumbered UK bidders during Q3 2018. See further below (Foreign bidders).

 

Industry analysis

Q3 2018 continued the trend seen in 2017 where deal activity was spread across a variety of industries.

In Q3 2018, firm offers were made for targets operating in 9 different industries.

The most active industries in Q3 2018 were Financial Services (21%), Pharmaceuticals & Biotechnology (21%) and Mining, Metals & Extraction (14%). Financial Services had three out of the four largest deals during Q3 2018.

 

The remaining deals were spread evenly across a range of sectors with Healthcare, Investment, Professional services, Food & Beverages, Travel, Hospitality, Leisure & Tourism and Computing & IT seeing one deal in each sector.

Foreign bidders

Non-UK bidders continue to be active.

Of the 14 firm offers announced during Q3 2018:

• four (29%) were made by UK bidders

• 10 (71%) were made by non-UK bidders

Non-UK bidders also accounted for 85% of total deal value in Q3 2018, which represents a significant decrease compared to Q3 2017 (where non-UK bidders accounted for 98% of deal value). Deal volume and deal value involving US bidders increased in Q3 2018 compared to Q3 2017.

Table of origin: UK and non-UK bidders

Bidder countryNumber of biddersTotal deal value
United States5£5.6 billion
England and Wales4£2.08 billion
Canada1£4.64 billion
Bahamas1£781 million
China1£166.7 million
Isle of Man1£99 million
Kuwait1£35 million
We will continue to monitor foreign bidder activity and will report on it in the Market Tracker UK Public M&A Trend Report for the full year 2018.

 

Consideration structure

Of the 14 firm offers announced:

• 11 (79%) were cash only offers

• one (7%) offered cash and a loan note alternative

• one (7%) offered a combination of cash and shares

• one (7%) offered shares only consideration

Almost all of the firm offers had a cash element, either solely or in combination with another form of consideration, accounting in total for 93% of firm offers announced in Q3 2018 and it was the exclusive form of consideration in 79% of deals. This is an increase from Q3 2017, where cash featured in 91% of all deals and was the exclusive form of consideration in 73% of deals.

Although cash only consideration was more frequently used by bidders in Q3 2018 (continuing the trend from 2017 as the most popular consideration structure), use of shares only consideration remained the same (one deal in both Q3 2017 and Q3 2018).

The three largest deals in Q3 2018 consisted of two cash only offers and one shares only offer, accounting for 78% of total deal value for Q3 2018. One was made by a Canadian bidder (offer for Randgold Resources Limited by Barrick Gold Corporation), one was made by a US bidder (offer for Jardine Lloyd Thompson Group plc by Marsh & McLennan Companies, Inc, a) and one offer was made by a UK bidder (offer for John Laing Infrastructure Fund Limited by Dalmore Capital Limited and Equitix Investment Management Limited).

The one firm offer announced during Q3 2018 featuring cash and a loan note alternative was made by a UK bidder (offer for Produce Investments plc by Promethean Investments LLP).

The one firm offer announced during Q3 2018 featuring a combination of cash and shares was made by a UK bidder (offer for Cambian plc by CareTech Holdings plc).

Q3 2018 saw a decrease in the proportion of transactions offering a combination of cash and shares (7% compared with 18% during Q3 2017).

The largest deal in Q3 2018 was a shares only offer and accounted for 35% of the deal value for Q3 2018 (offer for Randgold Resources Limited by Barrick Gold Corporation).

Bid financing

Q3 2018 saw a variety of funding structures with debt finance being the preferred form of finance structure.

Of the 13 firms offers that featured a cash element (accounting for 93% of all firm offers in Q3 2018):

• three (23%) were funded solely from existing cash resources

• three (23%) were funded solely by debt finance

• two (15%) were funded by a combination of existing cash resources and debt finance

• three (23%) were funded solely by equity subscription to bidco/PE funds

• one (8%) was funded by a combination of debt finance and equity subscription to bidco/PE funds

• one (8%) was funded by a combination of debt finance and indirect capital contributions

Five out of 13 firm offers (38%) were financed in whole or in part by existing cash reserves (compared with three out of 11 (27%) in Q3 2017). Accordingly there was an increase in the use of cash reserves in Q3 2018. Conversely, there has been a decrease in the use of debt, in whole or in part, with seven out of 13 (54%) bidders choosing to finance deals by debt (compared with seven out of 11 (64%) in Q3 2017).

The largest transaction was funded by consideration shares (offer for Randgold Resources Limited by Barrick Gold Corporation). The second largest transaction was funded by combination of debt finance and indirect capital contributions (offer for Jardine Lloyd Thompson Group plc by Marsh & McLennan Companies, Inc.). The third largest deal was funded by debt finance alone (offer for John Laing Infrastructure Fund Limited by Dalmore Capital Limited and Equitix Investment Management Limited. The fourth largest transaction was funded by equity subscription to bidco/PE funds only (offer for esure Group plc by Bain Capital Private Equity, LP).

The end of the bidding war—Sky/Comcast/Fox/Disney

The bidding war for Sky between Comcast Corporation (Comcast) and Fox finally drew to a close during Q3 2018. This was precipitated by the Takeover Panel establishing an auction process on 20 September 2018, which resulted in Comcast being the successful bidder. Subsequently, Fox announced that it intended to sell its shareholding of 39% in Sky to Comcast and let its offer lapse.

Following the results of the auction, Comcast acquired more than 30% of Sky shareholdings through market purchases at a price of £17.28 per share (triggering the requirement for a mandatory offer pursuant to Rule 9 of the Takeover Code). On 4 October 2018, Comcast acquired Fox’s 39.12% share and Fox’s offer lapsed on 6 October 2018. Comcast announced on 9 October 2018, that its mandatory offer was wholly unconditional with Comcast holding 76.84% (which also included Fox’s acquired shareholding) of Sky’s issued share capital.

 

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