UK Public M&A Snapshot Winter 21/22

2022 is expected to be another busy year for UK public M&A activity after a stellar year in 2021. Overall there were 55 firm offers announced in 2021, making 2021 the second busiest year for UK public M&A in the last decade (after 2019). There were a particularly significant number of large bids in 2021, with 21 deals with a value of more than £1 billion, making 2021 the busiest year on record for UK public M&A on this measure.

2022 is expected to continue with the standout themes in 2021 including the high levels of private equity activity (including the pursuit of ever larger UK listed targets and consortium deals), bids by U.S. bidders outnumbering those by domestic bidders for the first time and the large number of competitive situations, a number of which were resolved by historically rare Takeover Panel auctions.¹

Auctions in UK Public Bids

Despite a minor slowdown in Q4, potentially due to the emergence of the Omicron variant and re-introduction of restrictions in many jurisdictions, there were 6 new firm offers for targets listed on the main market of the London Stock Exchange (down from 11 in Q3) alongside 7 new firm offers for targets listed on AIM.

Signs of increased activity from corporate bidders…

In our previous snapshot², we noted that there were signs of increased interest from corporate bidders, which had been noticeably absent earlier in the year.

This trend continued in Q4 with a number of significant deals involving corporate bidders. These included Vitol’s $2.3bn bid for Vivo Energy PLC, Aristocrat Leisure’s £2.1bn bid for Playtech, National Express’s bid for Stagecoach (see below) and SS&C’s bid for Blue Prism (which is discussed in the next section).

On 21 September, Stagecoach announced that it was in discussions with National Express with respect to a potential all-share combination.

After 3 extensions to the “put up or shut up” deadline imposed under the Takeover Code, on 14 December, National Express and Stagecoach released a joint firm offer announcement of a proposed all-share combination pursuant to which Stagecoach shareholders would be entitled to 0.36 new National Express shares for each Stagecoach share held (implying a ~23% premium on the Stagecoach shares based on 3m VWAPs). Following the combination, National express shareholders will own ~75% of, and Stagecoach shareholders will own ~25% of, the combined group.

This deal was notable as one of the first significant all-share mergers post-COVID (such deals last being seen in significant numbers between 2017 and 2019).

… while private equity activity declines

UK public M&A activity in the first three quarters was driven overwhelmingly by private equity bidders.³ While sponsors continued to show interest in UK listed targets in Q4, fewer deals got to the public announcement stage.

In some cases, this was a result of an inability to reach agreement on price with the target board. As we have noted in previous updates⁴, negotiations with target boards have become more protracted and difficult in the current environment. Coupled with the numerous instances of target shareholders publicly attacking bids on valuation grounds (even once recommended by the target board)⁵ and a general feeling among a number of the largest UK institutional investors that private equity bidders are acquiring UK public companies “too cheaply”, many UK target boards are feeling increasingly emboldened in their negotiations with private equity bidders, which is making it more difficult to reach agreement on price.

Deals that did get to the firm offer announcement stage included Triton’s bid for Clinigen, Vista’s bid for Blue Prism (subsequently topped by a competing bid from SS&C) and a portfolio company of TDR Capital’s bid for Marshall Motor. Interestingly, all of these deals involved targets listed on the AIM market (see below), which may be instructive as to where sponsors continue to see value in the UK public markets.

We expect private equity interest in UK listed targets to continue in the medium term as sponsors retain record levels of dry powder, UK equity values continue to look attractive compared to equity values in the U.S. and other developed markets, and persistent weakness in the pound provides overseas bidders with extra firepower.

Increased interest in bids for AIM companies

While high-value UK public M&A activity has been historically focused on the FTSE 100 and FTSE 250 companies listed on the main market of the London Stock Exchange, we are seeing an increasing number of large and interesting deals involving targets listed on AIM. Previously known as the “Alternative Investment Market”, AIM is the London Stock Exchange’s market for small and medium size growth companies. AIM has a heavy concentration of companies in the technology and life sciences sectors, and with the growth of equity valuations in these sectors, there is an increasing group of large cap companies listed on AIM. There were 7 new firm offers for targets listed on AIM in Q4 and, of particular note, 2 of these (Triton’s bid for Clinigen and SS&C’s bid for Blue Prism) valued the target at more than £1 billion.

With 40 AIM companies with market caps in excess of £500 million (and half of these in the £1 billion plus range) and a number of sponsors focused on the high-growth companies that dominate the AIM market, we expect this to be an increasing source of significant UK public M&A activity in the years to come.

In addition, there have been two high-profile competitive situations involving AIM-listed targets in recent months: the competing bids for Augean PLC (which was resolved by a Panel auction in late September⁶) and the competing bids for Blue Prism Group PLC.

On 31 August, in response to market speculation, Blue Prism, a UK automation software developer, announced that it was in discussions with possible bidders Vista Equity Partners and TPG Capital.

On 28 September, Vista Equity Partners announced a recommended firm bid for Blue Prism at 1,125p per share in cash valuing Blue Prism at ~£1.1bn. On 30 September, TPG Capital announced that it did not intend to make a bid.

On 30 September, activist shareholder, Coast Capital, sent a letter to the Blue Prism board attacking Vista’s bid and the Blue Prism board process that led to the Vista bid being recommended. On 6 October, the Blue Prism board issued a public response, defending the board’s process and highlighting, in particular, that before it recommended the Vista bid, it had undertaken an extensive market check over four months that included outreach to 15 strategic parties and 12 financial sponsors.

On 10 November, SS&C approached the board of Blue Prism regarding a possible bid and was granted diligence access. On 16 November, Blue Prism announced that it was adjourning the shareholder meetings to approve the Vista bid that had been due to take place on 19 November in order to give SS&C further time to make a firm bid. Coast Capital announced its support for SS&C making a bid.

On 25 November, in light of the SS&C and Coast Capital developments mentioned above, Vista announced that it was increasing its bid to 1,250p per share valuing Blue Prism at ~£1.22bn.

On 1 December, SS&C announced a recommended firm bid for Blue Prism at 1,275p per share in cash valuing Blue Prism at ~£1.24bn.

On 11 December, Vista announced that its bid had lapsed.

The shareholder meetings approving the SS&C bid were held on 13 January 2022 and the bid is expected to complete in Q1 or Q2 2022.