Jun 1, 2024 · 22 min
Private equity targets undervalued UK companies
IC020 Investor's Champion Podcast – Take Over Mania
The episode examines whether takeover premiums reward shareholders fairly or sacrifice the long-term potential of UK-listed businesses.
- 1Depressed valuations, political uncertainty, and abundant private-equity capital are making UK-listed companies attractive takeover targets.
- 2XP Power and Smart Metering Systems illustrate how buyers can exploit weakness, delist businesses, and wait for better conditions.
- 3Lord Lee argues shareholders should resist short-term premiums when promising UK companies need time to realize their value.
Don't miss
Lord Lee argues that shareholders should hold promising UK businesses through difficult periods rather than accept short-term takeover premiums.
The brief
Lord Lee and Chris examine an unusually intense run of takeovers across UK-listed and AIM companies, asking why buyers see opportunity where public markets see weakness.
They trace the appeal to depressed valuations, political uncertainty, private equity’s cash reserves, and institutional shareholders’ readiness to accept immediate premiums.
XP Power becomes a case study in opportunistic bidding, while Smart Metering Systems shows how private equity can delist a company, reduce costs, and wait for conditions to improve.
The discussion broadens to Hargreaves Lansdown, the London Stock Exchange’s priorities, and listing rules that may push founder-led companies toward US markets.
Lord Lee’s conclusion is deliberately patient: shareholders should support promising UK businesses through difficult periods instead of treating every premium as an obvious victory.
What was said on this episode
18 statements · 10 positive · 7 negative · 1 neutral
UK-listed companies are undervalued, driving takeover activity.
“companies are cheap”
Listen at 1:43
Private equity has substantial undeployed cash available for acquisitions.
“private equity has got a lot of cash and it's struggling to deploy it”
Listen at 2:42
UK institutions readily accept takeover offers for portfolio companies.
“UK institutions have been very happy to accept these offers”
Listen at 2:53
Senior executives may favor takeovers because share-based rewards crystallize.
“They're often very keen to orchestrate a good deal”
Listen at 4:12
Recovering companies may ultimately deliver multiples beyond takeover premiums.
“could go on to deliver multiples more than what the premium is”
Listen at 4:45
The UK experiences more takeover activity relative to market size than other markets.
“the UK market, in relative terms, relative to its size, number of companies, is probably seeing more of it than others”
Listen at 5:08
Brexit contributes substantially to the cheapness of UK stocks.
“Brexit has a big part to play in it”
Listen at 5:32
Political uncertainty depresses stock markets and investor sentiment.
“stock markets hate uncertainty”
Listen at 5:57
Many construction businesses will recover strongly when the economic cycle changes.
“there are so many businesses that are going to come out smelling of roses”
Listen at 8:02
Mars acquired Hotel Chocolat at approximately a 170% premium.
“effectively bought it for what was about a 170% premium to the share price before”
Listen at 9:40
Private equity acquired Smart Metering Systems for over £1 billion.
“that business has now been snapped up”
Listen at 11:00
Hargreaves Lansdown has approximately 40% market share and $150 billion under administration.
“Apparently he's got about 40% market share, $150 billion of assets under administration”
Listen at 14:11
UK investment managers are significantly undervalued.
“UK investment managers look really great value”
Listen at 14:54
London Stock Exchange Group prioritizes data over exchange operations.
“It makes its money out of data, and that's where it's put all its emphasis and its resources”
Listen at 15:39
Founders are more likely to list in the US when they can retain voting control.
“you're more likely to go to the US”
Listen at 17:45
Many opportunistic takeover offers undervalue companies facing temporary difficulties.
“so many of these others that are cheapskate offers during times of duress for a business just don't— they really don't make much”
Listen at 19:44
Shareholders should reject cheap takeover offers and remain invested.
“Stick with it, I would”
Listen at 20:02
Shareholders should hold promising businesses through difficult periods.
“they should stand firm and see things out and support them, keep them going”
Listen at 20:30
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.
Featuring
XP Power
London Stock ExchangeListen to the full episode and explore every guest, topic, and moment on PodLume.