Rise in foreign takeovers and shortage of IPOs reduce pool that investors can select from.
An increasing number of larger UK companies are being delisted due to acquisitions, posing challenges for domestic fund managers who now face a shrinking selection of quality stocks. In the first half of the year, 30 London-listed companies received takeover offers worth an average of £1bn, up from 27 offers averaging £443Mn last year, according to Peel Hunt.
Recent High-Profile Takeovers
While these acquisitions temporarily boost share prices, they are raising concerns among fund managers. The lack of IPOs coupled with delistings has left many worrying about a narrowing stock market, with limited opportunities for reinvestment.
Notable recent bids include Rupert Murdoch’s REA for Rightmove and US-based companies targeting FTSE 250 firms like Tyman and Spirent. Additionally, AngloGold Ashanti’s £1.9 billion deal for Centamin highlights ongoing foreign interest in UK companies.
Foreign Buyers Target UK’s Lower Valuations
Foreign investors are attracted to the UK due to its relatively lower valuations compared to US companies. For example, the FTSE 100 trades at a lower price-to-earnings ratio than the S&P 500, making UK companies appealing acquisition targets.
The limited number of IPOs in recent years has reduced the number of quality stocks available. London has witnessed only nine IPOs this year, significantly fewer than in previous years, contributing to concerns among fund managers.
Policymakers are introducing reforms to make London more attractive for flotations. These include encouraging pension funds to allocate more capital to UK-listed stocks. The Financial Conduct Authority has also announced an overhaul of listing rules to revive the market.
