Corporations and private equity firms, many from America, are scooping up scores of British companies at bargain prices across industries, raising concerns.
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Two main forces are driving this year’s unprecedented spate of buyouts: First, global investment firms are flush with cash, holding $1.3 trillion in unallocated capital, according to PitchBook. At the same time, company valuations in the U.K. have been depressed by lingering uncertainty over Brexit, made worse by the pandemic. The numbers are striking. Data from Dealogic show that by late August, 39 bids for British companies had been completed or proposed. The total number in 2020 was 41. Refinitiv reckons that in the first half of 2021, buyout groups spent $45 billion on U.K. companies.
The world’s biggest private equity firm, New York-based Blackstone, has invested nearly $20 billion in the country and maintains a small army of over 400 employees in London. Its bid to take over property firm St. Modwen was approved in early August. As part of a consortium including two other American PE firms, Blackstone previously took over Signature Aviation, a private jet services business. “There is no shortage of opportunity” in Britain, said Lionel Assant, European Head of Private Equity for Blackstone.
Morrisons, the country’s fourth-largest supermarket chain, has been the subject of a fevered bidding war in recent months. Its board accepted a $9.5 billion bid from American PE firm Clayton, Dubilier & Rice in August, but as Nicholas Hyett, Equity Analyst at Hargreaves Lansdown remarked, “This might not be the end of the story”. Lawmakers have raised concerns about new owners swooping in, selling off assets, and shedding workers. The looming takeover of Morrisons has agitated members of the Labour Party, who question the fate of an important British food supplier and its nearly 120,000 employees.
Concerns are heightened in the face of defence industry buyouts by foreign corporate and private equity investors. Two Ohio companies, engineering firm Parker Hannifin and TransDigm, a maker of aircraft components, are now courting British aerospace and defence firm Meggitt. The British government said it is taking an “active interest”. In August defence tech firm Ultra Electronics accepted a buyout from British aerospace company Cobham, prompting the Labour Party to raise national security concerns. Cobham itself was taken over by American private equity firm Advent in 2020 and broken up.
The appeal of British companies to foreign investors, particular from America, is their low prices. The price-to-earnings ratio of the FTSE 100 index is far lower than that of the S&P 500, and returns on the FTSE 100 have lagged for years, the New York Times reports. Many attribute this to a relative scarcity of tech stocks. Caroline Simmons, U.K. Chief Investment Officer at UBS Global Wealth Management, notes that much of the structural growth in global markets for years has come from tech sectors and industries that are being digitized – while indexes like the FTSE 100 are weighed down by companies in industries that investors do not favour, such as traditional retail, mining and oil.