UK Stock Market Takeover Targets For 2024

The stock market loves a good takeover target and story and nothing quite gets investors going like bid speculation. So here I take a look at the biggest and best takeovers of 2023 and what stocks may be potentially bid for in 2024.

At this time in the economic calendar, it’s customary to look back over the year that’s been and gone, and forward to the New Year to come, and who are we to break with tradition?

Several key themes drove 2023, the battle with inflation and the higher interest rates that it caused, house prices that peaked and in some cases went into reverse. We also saw the return of cash deposits and government bonds as viable investment choices, thanks to those higher interest rates.

A generative rally

Probably the biggest story of 2023 was the rise of AI, or should that be the rise of stocks linked to Artificial Intelligence?

None more so than graphics chip maker Nvidia (NVDA) which is on course to finish 2023 with a +240.0% gain.

Of course, there was that recent wobble in the AI story, when Sam Altman was briefly fired, and then reinstated as the CEO of Chat GPT owners, OpenAI, but we won’t dwell on that today.

M&A is subdued but ongoing

Despite the headlines about a lack of deals and lower earnings in the corporate finance departments of investment banks and brokerages, there was a  decent amount of M&A activity in 2023.

Though it’s true to say that there weren’t that many mega-deals, there were plenty of smaller to mid-size transactions.

And in the summer US oil giants Chevron (CVX) and Exxon (XOM) flexed their chequebooks to make the multi-billion dollar purchases of Hess and Pioneer.

M&A activity wasn’t confined to the US; indeed there was plenty to keep the UK’s corporate finance teams busy, as 43 bids or other deals were in the mix by the end of October this year.

Those deals were worth a not inconsiderable £26.30 billion, though by far the biggest of them is the proposed merger of packaging group Smurfit Kappa with its rival Westrock, which accounts for approximately one-third of the value of those 43 deals.

Acquisition analysis

Here’s a breakdown of the major takeover deals in the UK in 2023

Source: Shore Capital

Bid premiums for cheap companies

According to data from brokers Shore Capital, the mean bid premium for UK takeover deals in 2023 was +60.0%. The median, or midpoint, is found at 40.0%.

The broker makes the very valid point that UK equity indices have been in the doldrums for years when compared to their European and US peers, many of which have made (high?) double-digit gains in 2023 alone.

UK companies are cheap, particularly to those predators who have enjoyed a rising share price or whose balance sheets are flush with cash such as PE funds. At the time of writing the S&P 500 is up by more than + 91.0% in the last five years, and by +157.0% over the last decade.

With that in mind and with no obvious sign of a renaissance in UK equity indices on the horizon, it makes sense to think about who could be in the firing line in 2024.

Most active takeover sectors

According to Shore Capital, since 2017 the sectors which have seen the most M&A activity by value include Other Financials (£30.43 billion) Food and Beverage (£22.80 billion) and Electronics Equipment ((£22.40Billion).

Selected Merger and acquisition activity in UK markets (2017 to end Sept 2023)

Source: Shore Capital / PTM

Potential takeover targets in 2024

What makes for an attractive takeover target in 2024? Well, many of the bid targets in 2023 were seen as being undervalued and having strong brands, or, intellectual property. Which offered growth opportunities, given access to more capital, or a larger parent.

Looking down the list of FTSE 250 stocks and scanning for those names with low PE ratios we find house builders Redrow and Crest Nicholson:

Redrow & Crest Nicholson

• Redrow PEs of 6.57 Crest Nicholson PE 4.13 times
• The price-to-book ratios of the two businesses are 0.97 and 0.62. They have dividend yields of 5.0% and 7.90%.
• Crest Nicholson has a market cap of just £550.00 million a fraction of those of larger rivals like Persimmon or Taylor Wimpey.

Ibstock Johnson

Building Materials Group Ibstock Johnson is another stock that catches the eye:

• Ibstock Johnson’s PE of 8.55, it has a dividend yield a smidgen over 6.0%.
• It trades on a price-to-book ratio of 1.38 times and just 1.12 times sales.

Jupiter Fund Management

Elsewhere Jupiter Fund Management looks interesting:

• Jupiter Fund Management market cap of £480.0 million
• A PE of 8.16 and a price-to-book ratio of just 0.57 times,
• A possible target for UK or European rivals, in a sector where economies of scale are crucial.

Vesuvius

Speciality materials group Vesuvius is another stock of interest:

• Vesuvius: Market cap of £1.27 billion, PE of 7.80 times
• Price to book 1.0,  ROI  43%.

Vodafone & BT

In the FTSE 100 Vodafone and BT, both look cheap with lowly PEs, price to book and price-to-sales numbers.

Glencore

Mining and commodities giant Glencore is another stock that stands out in the top 100. Though with a market cap of £57.0 billion, it won’t be on too many shopping lists.

Nevertheless, it has a price-to-book ratio of 1.50 times and a PE of 7.80, well below that of Rio Tinto and Anglo-American.

Both of whom also have far higher profit margins, and that suggests that there is hidden value, if not gold, in them thar hills.

Darren Sinden

With over 35 years of finance experience, Darren is a highly respected and knowledgeable industry expert. With an extensive career covering trading, sales, analytics and research, he has a vast knowledge covering every aspect of the financial markets.

During his career, Darren has acted for and advised major hedge funds and investment banks such as GLG, Thames River, Ruby Capital and CQS, Dresdner Kleinwort and HSBC.

In addition to the financial analysis and commentary he provides as an editor at GoodMoneyGuide.com, his work has been featured in publications including Fool.co.uk.

As well as extensive experience of writing financial commentary, he previously worked as a Market Research & Client Relationships Manager at Admiral Markets UK Ltd, before providing expert insights as a market analyst at Pepperstone.

Darren is an expert in areas like currency, CFDs, equities and derivatives and has authored over 260 guides on GoodMoneyGuide.com.

He has an aptitude for explaining trading concepts in a way that newcomers can understand, such as this guide to day trading Forex at Pepperstone.com
Darren has done interviews and analysis for companies like Queso, including an interview on technical trading levels.

A well known authority in the industry, he has provided interviews on Bloomberg (UK), CNBC (UK) Reuters (UK), Tiptv (UK), BNN (Canada) and Asharq Bloomberg Arabia.

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