UK Public M&A: What Happened in 2024 and What to Expect in 2025

2024 – wrap up

2024 was a busy and interesting year for the UK public M&A market, characterised by an uptick in confidence levels by market participants. 2024 saw an increase in aggregate deal value (by approximately 160%) compared to 2023, despite an overall decline in deal volumes (by approximately 9%). Reflective of this, a significant flow of firm offers over £1 billion returned to the market (with 16 firm offers, being a significant increase from four in 2023). In addition, the mid and lower cap markets were very active (with firm offers at this end of the market increasingly involving more complex/creative structures, and the largest volume of firm offers being announced at a level below £250 million). Average deal value also increased to approximately £1 billion, a significant uptick from approximately £325 million in 2023. There was also an increased number of competing bids as compared to the previous two years.

The range of potential bidders interested in UK public targets was diverse, with particular interest from domestic and international strategic bidders as well as financial sponsors. A more certain macro and geopolitical environment as compared to 2023, combined with increased interest and inflation rate stability, assisted confidence levels for bidders to make approaches and proceed to firm offers. Some factors (such as a stronger performance of the FTSE and key political elections during H2) possibly had some limited impact on activity, with a slight decline in firm offer volumes and values in H2 as compared to H1. UK public targets remained focused on defence preparation and, consistent with 2024, were often robust in rejecting potential bidders where approaches were seen as opportunistic due to perceived discounted valuations or where the target was facing shorter term business or financial challenges.

We explore below in more detail some of the reasons behind the state of the UK public M&A market in 2024 and predict what’s in store for 2025.

2024 – key themes

The key themes of UK public M&A activity in 2024 were as follows:

1. Reduced dislocation between valuations vs acceptable premiums – but the dislocation still remains: A consistent theme in recent years has been that bidders and targets have often been prevented from reaching agreement on offer terms because of a material dislocation between a potential bidder’s view on an appropriate premium to a target’s share price as compared to a target board’s own assessment, based on its position on underlying valuation and standalone prospects. While the degree of dislocation appeared to narrow in 2024 (or was effectively bridged by other forms of consideration – see below), it remained fairly common for there to be situations where target boards rejected offers at premiums which, in former times, would have been considered high – the average premium in 2024 was approximately 46% (above historic/healthy average premiums typically being in the region of 30% to 40%). This resulted in some potential bidders attempting strategies such as public “bear hugs” or abandoning their bids.
2. Return of strategic bidders: To the surprise of many, more optimistic confidence levels saw a significant number of strategic buyers making offers as compared to previous years (an increase of approximately 42% on 2023), particularly at the higher end of the market and during H1. This was reflective of corporates seeking to pursue (or coming under pressure from shareholders to pursue) strategic opportunities and harness growth trajectories under more certain market conditions. Those in the strongest position had cash heavy balance sheets (with lower reliance on debt financing) and/or were able to offer listed shares as part of the consideration mix. Strategic bidders were also particularly active in competitive situations, indicating an increasing desire not to miss out on strategic transactions for high-quality assets or where the synergy analysis made them more competitive.
3. Steady levels of P2P activity: Despite a decrease in the volume of P2P transactions (decreasing by approximately 46% on 2023), the significantly higher aggregate and individual deal values for take private transactions in 2024 (an increase of approximately 38% and approximately 172%, respectively) is indicative of the desire for financial sponsors to deploy capital and also a result of more favourable financing conditions as compared to 2023, as well as an increasing willingness and ability to access private credit. Financial sponsors were equally active at the higher, mid- and small-cap ends of the market. Unlisted share consideration (i.e., “stub equity”) alternatives as a component of financial sponsor offers was a continued strong trend, including in respect of offers at the higher end of the market. It is worth noting that the proportionate percentage reduction in the volume of P2P transactions in 2024 should not be taken as an indication of reduced activity or interest by financial sponsors in UK public M&A (as is also apparent from the increased average aggregate and individual deal values for P2P transaction).
4. Unlisted share consideration is increasingly popular: There was an increase in the use of listed and unlisted share consideration as an alternative to a cash offer, with seven firm offers involving a stub equity alternative. This was generally driven by a desire to: (i) bridge the dislocation of expectations on valuation vs premiums referred to above to, (ii) provide target management and larger target shareholders an opportunity to have ongoing exposure to the target’s business, and/or (iii) reduce total financing costs. Unsurprisingly, as noted above, stub equity structures were most commonly used by financial sponsors, though there was one instance of a stub equity structure being used by a strategic bidder. In one instance, a bidder offered two stub alternatives, which included the option of a preference share component. In 2024, we started to see institutional investors being more vocal in their view on the terms of unlisted equity alternatives and their ability to hold unlisted equity, which is something bidders offering a stub equity alternative should have in mind when structuring their offers.
5. Shareholder activism continued to influence many takeover offers: There were various examples of shareholder activism in a takeover context. Unhappy key shareholders were increasingly willing to make known publicly their thoughts on the (un)attractiveness of the terms of an offer (or type of bidder) and there were several instances where a target board and significant shareholders had different views on the attractiveness of the premium being offered by a potential bidder, which prevented some transactions moving beyond possible offer stage. In addition, there was one instance of a recommended firm offer being voted down by target shareholders, with two other offers marginally clearing the scheme approval “value test”. Conversely, there were some instances of bidders being willing to take more risk around an offer being voted down or not accepted on the basis of its terms. Tactics included bidders announcing that their price is final (i.e., a “no increase” statement) in order to avoid shareholders trying to apply pressure to secure a higher price and, in one instance, a bidder successfully switched to an offer with an acceptance condition of 55% plus one share (on the basis of an offer price declared as final) in order to maximise the chance of the offer completing (which proved successful, with the activist shareholder eventually accepting the offer).
6. The anti-trust/regulatory environment remained dynamic and challenging:
   • Anti-trust regulators in the UK, Europe and US, as well as foreign investment regulators globally, continued to keep businesses seeking clearances on their toes and in some instances created uncomfortable situations for bidders and the Takeover Panel in relation to contractual offer processes running past Day 60.
   • For merger control, while public discussions about speed and process have focused on the statutory phases of review, parties are seeing ever more lengthy “pre-notification discussions”, with extensive requests for information and documents.
   • In UK public takeover situations, we continue to see bidders including at least a briefing paper condition precedent in offers, not least given the removal of mandatory lapse in the event of CMA Phase 2 referral. On substance, the CMA has signalled a greater openness to behavioural remedies, although in practice this may prove difficult to apply to Phase 1 remedies, which must be “clear cut” and remove competition concerns outright, not just mitigate them. To date, there have been no public offers which demonstrate the CMA taking a markedly different approach to behavioural remedies. The EU Commission accepted behavioural remedies in the only Phase 2 foreign subsidies regime clearance to date. However, for merger control, the EU Commission has largely remained orthodox in its approach.
   • We continue to see UK public targets taking care, when evaluating whether to recommend an offer, to understand the anti-trust/regulatory risk, as well as seeking protections to maximise completion prospects. We also saw examples last year of antitrust-based defences being deployed to resist demands of activist shareholders, for example in relation to Frasers’ attempts to pressure Boohoo plc.
7. Some improvement in financing markets: Financing constraints eased during 2024, with improved availability of bank and syndicated financing (albeit at a higher associated cost, despite lower interest rates). However, lenders continued to be more selective as to which transactions or bidders they would support, and those with strong balance sheets and/or who could rely on well-established lending relationships tended to obtain better terms. Continuing the trend from 2023, a number of offers (in particular those by financial sponsors) were financed through one or more private credit lenders, particularly where Sterling was in play, so there was hot competition between syndicated lending and private credit. In order to reduce financing costs, some strategic bidders also considered raising debt or equity financing from public markets during the offer period (creating additional complexity as a result of Takeover Code restrictions) or sought equity commitments from a third-party financial/cornerstone investor. The increased use of share consideration was also reflective of the higher costs of finance relative to historic levels. Consortium structures (as a method to spread financing costs and general transaction risk) were not particularly popular as compared to previous years, though financial sponsors were active in the use of co-investment.

Key Takeover Code updates

The Takeover Panel published a number of updates to the Takeover Code during 2024. Most notably, this included changes to the Takeover Panel’s jurisdictional framework, which (in broad terms) will narrow the scope of companies to which the Takeover Code applies. The changes come into effect from 3 February 2025, with certain provisions subject to a transitional period that runs to 2 February 2027. Other key updates include clarification in relation to the Takeover Panel’s position as regards bidders needing clear and specific intention statements for the target’s business for the 12 month post-closing period (Panel Bulletin 7), in relation to how the equality of information rules are to be applied in practice with respect to representative/nominee directors of a shareholder who are members of the target’s board (Panel Bulletin 6), as well as regarding (amongst other things) the Takeover Panel’s new practice in relation to private sale processes (Practice Statement 31).

What’s in store for the UK public M&A market in 2025?

We anticipate that in at least the first half of 2025 we will see (to a large extent) a continuation of the trends and market conditions of 2024, though potential remains for activity to be hindered by increased domestic and international economic and/or political uncertainty. We remain optimistic about high deal volumes and values in 2025, with interest from potential bidders remaining high. In particular:

1. We will continue to see healthy levels of interest from strategic (in particular, international) bidders and financial sponsors in the UK public M&A market.
   • Strategic bidders: We expect that domestic and international strategic bidders will continue to look for opportunities to acquire targets where there are clear synergies or significant growth prospects, and will continue to find the use of share consideration (or a mix of cash and shares) as an attractive way to undertake larger transactions. In particular, US bidders (who in recent years have been increasing their activity in UK public markets and have represented the highest proportion of international bidders) are expected to take advantage of a strong domestic economy and favourable exchange rates in undertaking outbound M&A.
   • Financial sponsors: Financial sponsors (as well as sovereign wealth funds) have significant levels of capital available, with fund managers increasingly focused on deploying capital. We expect that this will be a significant factor driving financial sponsor activity (combined with the availability of debt (see below)), particularly where there are favourable exchange rates at play and/or interest rates reduce throughout the year (as is currently predicted). We also expect that financial sponsors will remain active in the mid- and small-cap markets, given the comparative ease and cost at which these transactions can be financed.
2. The dislocation between valuations vs acceptable premiums will remain, particularly where approaches are seen as opportunistic as a result of macro conditions (including a depressed Sterling currency) or in response to particular short- to medium-term challenges a target may be facing. Potential bidders will remain focused on understanding a target board’s likely views on price before making an approach. Prior to approach, potential bidders should also understand what they can do to make their offers more attractive to a target board outside of price (for example, by securing irrevocable commitments in favour of the transaction from large shareholders or maximising completion certainty where there are particular anti-trust/regulatory sensitivities). We expect that target boards pursuing robust defence strategies will continue to use public tactics such as publishing possible offer announcements stating a bidder’s proposed offer price and why it is unacceptable, and engaging with target shareholders, in order to solicit a higher premium.
3. Competing bids will remain a feature of the market, particularly for coveted assets. As a result, we expect to see bidders focused on reducing interloper risk. This may also lend itself to target boards feeling robust on their own valuation (and associated premia) and lead to possible offer announcements being made unilaterally by targets (particularly those wanting to be bought) in an effort to solicit interest from other bidders.
4. The views of large shareholders will remain important to bidders focused on completion certainty, and we expect to see shareholders who are unhappy with offer terms employ similar tactics to those seen in 2024. As a result, we anticipate that potential bidders will continue to be increasingly focused on engaging with larger target shareholders prior to announcement of a firm offer, in order to mitigate the risk of a vote against the offer or a price increase post-announcement (and in some cases, as a mechanism to pressure engagement by the target board with the bidder where they have been resistant and the offer price is considered favourable by key target shareholders). Bidders will continue to be creative in making their offer more attractive to target shareholders – for example, through (listing or unlisted) share alternatives. Conversely, for bidders who have a robust view on the attractiveness of their offer, we may see them employ tactics such as issuing no increase statements or switching to an offer at a lower acceptance threshold than would be required for the vote on the scheme.
5. The current funding and financing trends will continue. Demand for alternative funding sources (in competition with accessing the broadly syndicated leveraged finance market) as well as a willingness of bidders to use alternative transaction or consideration structures, will continue. Private credit remains very competitive for Sterling deals and tranches, while a combination of broadly syndicated tranches and private credit also remains a possibility. With this in mind, “dual track” financing processes where private credit and broadly syndicated debt compete, are likely to continue.
6. There will be more tangible political pressure on antitrust regulators. Under (unusually public) political pressure to support the Labour government’s growth strategy for the UK, the CMA has expressed an increased commitment to balancing short term competition concerns with longer term competition-enhancing efficiencies, including in relation to investment (as seen in the unprecedented Vodafone/Hutchison clearance remedies which focused on an eight year investment plan in network upgrades). The EU Commission is similarly pursuing a growth agenda, but officials at the EU Directorate-General for Competition have been openly critical of the CMA’s approach in that case, warning that established competition analysis cannot be compromised at the expense of customers. Separately, the EU Commission has expressed an intention to be more geostrategic in exercising its enforcement tools, addressing broader EU strategic objectives such as driving productivity, boosting EU economic sovereignty and tackling climate change. Offers in strategic sectors may therefore see increased scrutiny and complexity in crafting remedies where potentially conflicting pressures are in play.
7. Reforms to the UK national security control regime? Planned reforms to the NSI Act under the previous government (including removing internal reorganisations and insolvency-related appointments from notification obligations) did not happen because of the 2024 UK general election. The Labour government has been largely silent on its plans, with officials indicating only that the previous reforms are being considered. Its recent report on the functioning of the mandatory notification regulations judged them only against their original objectives, and did not reach clear conclusions as regards reform proposals. The report was silent on the wider question of how investment screening under the NSI Act could be better aligned with the UK government’s new industrial strategy, particularly given overlaps between the growth sectors flagged in the strategy with the mandatory notification sectors under the UK National Security and Investment Act. We have called for the regime to be reformed to create carve-outs for intra-UK investment (given domestic investors are, unusually, caught by the regime) and to create a streamlined process for inwards investment from allies.
   
   

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