The Private Equity Takeover Trend: A Sign of the Times?
The recent acquisition of Intertek by a Swedish private equity firm is just the latest in a string of FTSE 100 companies falling into private hands. While this particular deal may not be a landmark event, it reflects a broader trend that warrants attention.
The Shrinking Public Market
What's striking is the lack of new listings on the London Stock Exchange, especially in contrast to the flurry of takeovers. The public market seems to be shrinking, with only three main market flotations this year, none of which made it to the FTSE 100. This raises concerns about the health and attractiveness of the London market.
Personally, I find it intriguing that even a historic UK engineering firm like Doncasters is opting for a US listing, chasing higher valuations. It challenges the notion that London is the natural hub for mid-market UK companies, especially in sectors like aerospace. This trend could have significant implications for the future of the London Stock Exchange.
The Power of Private Equity
Private equity firms have been remarkably successful in their pursuit of FTSE 100 companies. The Intertek deal is a prime example, with the board eventually capitulating to the consortium led by EQT. The process followed a predictable script: initial derision, followed by a gradual increase in bids until the offer became too good to refuse.
In my opinion, this highlights a broader issue with the current market dynamics. Private equity firms have deep pockets and a long-term investment horizon, which gives them an edge over public markets in certain situations. They can afford to wait out the haggling process and offer attractive premiums, making it difficult for boards and shareholders to resist.
The Rational Choice
The Intertek board's decision to accept the takeover bid is understandable. With a 60% premium on the share price, it's hard to blame shareholders for opting for the certainty of cash. However, this also underscores the challenge of maintaining a vibrant public market.
What many people don't realize is that the allure of private equity is not just about financial gain. It's also about the perceived stability and control that comes with private ownership. In today's volatile market, the promise of long-term strategic planning and reduced public scrutiny can be appealing.
The Need for a Buzz
Brokers are quick to point out that the pipeline for new listings in London is looking healthier. While this is encouraging, it's not enough. The London market needs more than just new listings; it needs high-profile, 'buzzy' companies that capture the public imagination.
A big, exciting new listing could help shift the narrative and attract both investors and companies. It's not just about the numbers; it's about creating a market that people want to be a part of. The advertising campaigns aimed at ordinary investors are a step in the right direction, but they need to be backed up by substantial listings.
The Broader Implications
The trend of private equity takeovers and the lack of new listings have deeper implications. It suggests that the London market may be undervalued, making it an attractive hunting ground for private equity funds. This could lead to a shift in the balance of power, with private equity firms wielding increasing influence over the UK's corporate landscape.
Furthermore, the absence of new listings, especially in the tech sector, raises questions about the UK's ability to foster and retain innovative companies. The Arm Holdings case is a stark reminder of this issue.
In conclusion, the Intertek takeover is a symptom of a larger phenomenon. The London Stock Exchange is at a crossroads, facing challenges in attracting new listings and retaining existing companies. The rise of private equity takeovers is a significant factor in this dynamic, offering both opportunities and threats. It's time for a serious reflection on how to make the London market more appealing and competitive in the global arena.
