Page 18 - DIY Investor Magazine - Issue 27

WHY ARE UK MID CAPS IN SUCH AN M&A SWEETSPOT RIGHT NOW?
UK-quoted companies are attracting good interest as global deal-making picks up again and FTSE 250 companies appear to be the candidates of choice.
By Jean Roche, Fund Manager, Schroder UK Mid Cap Fund plc
It would be difficult to miss the fact that UK mid cap companies are attracting a renewed level of bid interest at present. So much so that, every morning, when I log in to my virtual workplace, I am mentally preparing myself to see a new headline about the next one to be bid for.
In particular, renewed demand for UK-quoted companies
from large and experienced foreign buyers suggests to me that other investors continue to overlook an opportunity. Mid cap companies are at the centre of this interest from overseas companies (so-called “strategic buyers”), private equity (PE) or PE-backed purchasers.
‘GLOBAL DEAL-MAKING HAS RESUMED WITH GUSTO AS DEBT FINANCING HAS CHEAPENED AGAIN’
It’s always helpful to observe what the corporate and PE sectors are doing since we share their long-term mentality.
If the pick-up in “inbound” activity is a guide, it seems to me these bidders are currently thinking: “UK shares are cheap, sterling is weak, this is our opportunity to buy some prized assets outright.”
Mid caps are a synonym for the FTSE 250 index, which is the next most established group of shares trading on the London Stock Exchange outside the FTSE 100.
These companies can be the target of choice for bidders – not too big, but sufficiently large to make a difference – and in 2019 close to 12% of the FTSE 250 was acquired (see below).
DIY Investor Magazine | Mar 2021 18