Public M&A: The year that was

Henrik Persson, Head of Plc Strategic Advisory, finnCap Capital Markets

We are delighted to announce that finnCap Capital Markets’ Plc Strategic Advisory team is advising on the mandatory offer for Watchstone Group by Polygon Global Partners LLP. We’ve remained very busy over the last year and are pleased to see that public takeovers are front page news. Here we sum up our thoughts on the past 12 months and optimistically look forward.

As we entered into 2020, we were looking forward to a buoyant year for public M&A activity as the uncertainties that had weighed down activity since the Brexit referendum seemed to have settled. That sense of stability from which to plan ahead, combined with readily available financing and a sense of needing to catch up with paused investment strategies, meant dealmakers were feeling braver in moving ahead with deals involving public companies.

This clearly did not come to pass but it is surprising that notwithstanding the turmoil and market shock, there were 44 completed public takeovers in the year to 31 March 2021 as compared to the run rate of typically around 50 completed transactions per year. This was not, as one would expect in a downturn, predominantly distress or opportunism amongst smaller companies but included the takeovers of such large well-known names as William Hill, RSA Insurance and G4S Security.

We at finnCap advised on four of these 44 completed transactions, being approximately one-in-five of deals with a value less than £500m.

But publicly announced and completed deals only tell half the story. There is always a lot more going on behind the scenes with transactions that are either unwelcome or do not complete for whatever reasons. We saw a relatively high level of such transactions. Indeed we alone were involved in six other publicly disclosed situations, unwelcome bid defence, strategic reviews, public sales processes, and assisting in shareholder activism. It is arguable that some of our most successful mandates were those that were settled away from the bright lights.

Activity levels were suppressed for a relatively short period as compared to previous market shocks, but it is telling that there were as many transactions announced in the first three months of 2021 as compared to the six months to September 2020, with a similar level in the second quarter of 2021.

We are confident that this momentum will continue given that the ingredients for a buoyant 2020 remain largely in place today. The difference is that whilst it was speculated in early 2020 that PE activity on the public market would increase, this activity has clearly come through in 2021 to the extent that the number of P2P transactions has outweighed others so far. In this regard, during 2021 to date, we have acted on the P2P takeover offers for Proactis and Telit in addition to the financial sponsor-led or -backed takeovers of HML, Castleton and HWSI Realisation Fund in 2020.

That private equity have a surplus of funds to deploy is well documented, but it is also notable that transaction debt finance has largely been readily available and a sense of stability for building a conviction case emerged surprisingly early into the pandemic once portfolios were stabilised. The other side of the equation is that whilst investors have remained keen to support companies and the market has generally recovered strongly, many high-quality UK-listed companies’ valuations continue to trail their global peers even before factoring in favourable exchange rates. There are similarly strong reasons to support a robust level of strategic combinations, particularly as the “COVID winners” have the equity valuations to support all-share combinations with those emerging from the pandemic less well placed for the “new normal”.

The years after market shocks have typically been characterised by an upturn in public M&A transaction activity and this rebound seems to be following the same pattern, faster than previous downturns. We are proud to have worked on so many interesting situations in 2020 and look forward to being trusted to carry on doing so.

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