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

Company	Date	Bid price (p)	Premium (%)	Value (£m)	Terms	Bidder	Sector
Smurfit Kappa	12.09.23	one Smurfit Westrock	na	9,333.33	Shares	Smurfit Westrock	Industrial
Dechra Pharmaceuticals	13.04.23	3875	44	4,460.00	Cash	EQT	Medical
Network International	13.04.23	400	c.40	2,200.00	Cash	Brookfield	Financial
Kape Technologies	13.02.23	285	10	1,250.00	Cash	Unikmind	TMT
EMIS	17.06.23	1925	49	1,240.00	Cash	United Health	Medical
Ergomed	04.09.23	1350	28	703.00	Cash	Permira	Medical
Restaurant Group	12.10.23	65	34	506.00	Cash	Apollo	Consumer
Lookers	27.07.23	130	8	504.00	Cash	Alpha Auto	Consumer
Industrials REIT	03.04.23	168	42.4	499.00	Cash	Sussex Bidco	Financial
Civitas Social Housing	09.05.23	80	44.4	485.00	Cash	CKA	Financial
Gresham House	17.07.23	1105	63	470.00	Cash	Searchlight	Financial
Pendragon	20.09.23	32	13	447.00	Cash	Autonation	Consumer
Numis Corp	28.04.23	350	72	410.00	Cash	Deutsche Bank	Financial
Round Hill Music Fund	08.09.23	$1.15	67.3	390.00	Cash	Concord	Financial
DWF Group	10.07.23	100	53	342.00	Cash	Inflexion	Services
Hyve Group	21.02.23	105	24	306.00	Cash	Providence	Services
DX Group	11.09.23	48	12	290.00	Cash	HIG European Capital	Services
Dignity	04.01.23	550	29	281.00	Cash	Yellow (bidco)	Services
Medica	24.04.23	212	32	269.00	Cash	Moonlight Bidco	TMT/Medical
Sureserve	21.04.23	125	39	214.00	Cash	Cap10 Bidco	Services
Instem	30.08.23	833	41	203.00	Cash	Archimed	TMT/Medical
Kin & Carta	18.10.23	110	41	203.00	Cash	Apax Partners	TMT

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)

Sector	Deal Value (£m)	Median premium (%)
Other Financials	30,431	25.25
Food & Beverage	22,806	41.00
Electronics Equipment	22,403	43.00
Mining & Minerals	18,809	34.10
Software	17,781	38.90
Real Estate & Construction	14,742	40.35
Consumer & Retail	14,786	30.50
Other Services	13,262	39.80
Investment & Investment Management	11,825	27.00
Aviation	12,343	53.00
Online Gambling & Betting	11,890	22.05
Pharmaceutical	16,169	41.00
Financial Institutions	11,530	51.00
Automotive	10,698	32.45
REIT	11,811	28.63
Entertainment & Broadcasting	10,141	40.00
FinTech	9,806	24.30
Information Technology	9,770	33.70
Utilities	8,658	33.10

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.