Economic Outlook: Barbarians at the gate

01 Oct 2021 Expert insight

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Bids for listed UK companies are on the rise, with many coming from private equity.

This theme was starting to emerge prior to Covid-19, with companies such as Sophos, Greene King, Shire and Cobham taken private prepandemic. But activity has picked up again, hitting a record of almost $64bn this year.

Most of it is stemming from the US, according to Dealogic. More broadly, says there is cash amounting to trillions of dollars that is burning a hole in private equity’s pockets, meaning that there are few companies in the UK that are not viable targets.

What has prompted this surge of activity? Over the last decade the UK stock market has underperformed the US by over 60%, and now trades on a forward PE ratio of just 13x compared to 21x for the S&P 500, according to data from FactSet. In short, private equity is buying UK companies because they are compellingly cheap.

What is behind it?

There are reasons for this though. The uncertainty wrought by Brexit put many investors off investing for years. The UK market is also dominated by cheaply valued, old-economy companies such as banks, miners and energy companies, while a large proportion of the US index is accounted for by popular tech and growth stocks that have commanded higher valuations.

Other reasons that make the UK an attractive hunting ground include its pro-business environment, and a market that is more accepting of takeovers than elsewhere in Europe.

Investors should take note of private equity’s interest in the UK’s profitable yet cheap companies. Continued dealmaking activity should theoretically galvanise the market into reflecting UK plc’s true value and close the discount to global peers, although this has yet to happen.

But consider the pro-business environment, the rule of law and cheap valuations on offer. Combined with a burgeoning post-pandemic recovery, enabled by an effective vaccine rollout, the case for investing in the UK public markets is a compelling one. No wonder, then, that private equity dealmaking is on the up. Ruffer also continues to see compelling value, with UK stocks accounting for half of its equity allocation, the highest percentage for over a decade.

Charles Auer is an investment associate  

Ruffer LLP is a limited liability partnership, registered in England with registered number OC305288 authorised and regulated by the Financial Conduct Authority. The information contained in this article does not constitute investment advice or research and should not be used as the basis of any investment decision.  


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