The Daily Observer London Desk: Reporter- Victoria Smith
There is much focus at present in Whitehall and the City on restoring faith in Britain as a great place to list companies.
It is all a bit hopeless, however, when UK long investors are so thin on the ground as a result of a retreat by pension funds, weak stewardship and the onslaught of private equity.
The very biggest deals, such as those for supermarkets Morrisons and Asda, may be off the table because of surging borrowing costs, but second-line transactions keep on coming, denuding listed markets, eroding British tech and the country’s tax base.
Liberty Global-owned Virgin Media 02 is a case in point with a proposed shift of base to Bermuda, potentially undermining shareholder democracy and UK taxation.
The authorities, by using the National Security and Investment Act more aggressively, could make it harder for overseas private equity buyers to snaffle UK firms.
Going cheap: In the first five months of this year, nine UK-quoted firms have received buyout offers with a combined value of £6.5bn which exceeds totals in the whole of 2021 and 2022
The unopposed £4.5billion bid for veterinary pharma group Dechra by Swedish private equity outfit EQT is just the latest in a series of such deals.
Payments firm Network International Holdings, exhibitions specialist Hyve and health services provider Medica are all firms in growth areas of the UK economy.
The UK is a honeypot for private equity because of sub-octane listed values, a reputation for receptive open markets and flaccid boards ready to take the cash and run.
Higher money costs may have made the largest deals less fashionable, although Dechra is not a minnow.
Data provider Preqin reports that private equity sits on as much as $2.5 trillion – that’s not far short of the UK’s national output – of unspent funds.
Indeed, in the first five months of this year, nine UK-quoted firms have received buyout offers with a combined value of £6.5billion which exceeds totals in the whole of 2021 and 2022.
The biggest to get away is Apollo’s offer for Aberdeen-based oil engineer John Wood, which received five approaches.
UK firms are attractive because they are relatively undervalued and, unlike many of their Continental counterparts, there is a clear international focus.
Selling global ambition, when both the Tories and Labour want to boost growth, is economic vandalism.
Black gold
Bond traders punished two-year UK government bonds in latest trading, with yields climbing to 4.45 per cent.
The rise in gilt yields, at all maturities, will hurt home-owners seeking to re-finance their fixed-rate deals.
Sentiment turned against UK bonds after Saudi Arabia tightened oil production, with the aim of bolstering sinking prices.
The UK is seen as particularly vulnerable to higher energy costs because of disappointment over the Bank of England’s failure to get a better grip on inflation.
Reality is, however, that Opec plus one (Russia) is a much less effective force in dictating crude costs than was once the case. Prices have climbed since the Saudi decision.
As when Opec last sought to push prices up towards $80 a barrel, there is no confidence the increase can be sustained.
A big difference is the United States. The US may be wrapping itself up in climate change goals, but the administration has so far not managed to stop domestic wells pumping ever harder.
The latest data shows that, in March 2023, a record 12.7m barrels were being produced, with some 40 per cent of it coming from West Texas.
Following the war on Ukraine, the Americans are the biggest suppliers to Europe, surpassing Middle East producers.
America’s uber-capitalism finds it possible to accommodate the idea of a push for more carbon-free investment while pumping ever more oil.
Britain could learn some lessons as it pummels North Sea producers with windfall taxes and Labour threatens to end all future drilling.
Taking command
Diageo’s new chief executive Debra Crew would doubtless have preferred a more relaxed introduction to the top job at the drinks group.
She has been parachuted in a month early after her illustrious predecessor Ivan Menezes, who was boss for a decade, was taken ill.
He was bold in his ambition and responsible for investing in new distilleries in Scotland, developing the totemic Guinness label, reshaping the company’s presence in India and investing in growth liquor brands.
We trust that as a US military veteran, Crew keeps faith with her former commander’s formidable British and Irish legacy.
