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UK "seen as less accommodating" for big business, despite Dechra deal

2nd Jun 2023 11:43

(Alliance News) - Analysts were divided over what the latest takeover deal for a London mid-cap means for the wider financial market in the UK.

On Friday, veterinary drug maker Dechra Pharmaceuticals PLC said it has agreed to a GBP4.5 billion takeover offer from Swedish private equity firm EQT.

The offer values Dechra shares at 3,875 pence each, a 44% premium to Dechra's share price of 2,690p on April 12, the day before the takeover talks were first announced. Its shares rose 8.2% to 3,652.00p in London on Friday morning.

However, the offer is 4.8% lower than the 4,070p potential offer floated in mid-April. Dechra said it considered the new offer "fair and reasonable".

The deal is evidence of the "gradual thinning of London's market ranks", according to AJ Bell investment director Russ Mould.

"While some shareholders may welcome the modest premium on offer, the long-term consequences of a hollowing out of the mid-sized universe from which future giants are likely to be drawn does not do much for the health of the wider UK market," he considered.

Last month saw a resurgence in deal-making in London. In the FTSE 250 alone, there were takeover proposals for Network International Holdings PLC and John Wood Group PLC, while Rathbones PLC agreed a merger with Investec PLC's wealth management arm.

However, Hargreaves Lansdown lead equity analyst Sophie Lund-Yates was quick to point out that UK M&A activity has dropped to 2016 levels, "despite Dechra's deal signalling otherwise".

"The total value of mergers and acquisitions, involving UK companies, halved to just under USD90 billion in the first five months of the year," she said.

Whilst conceding that London's listings have seen a "concentrated spate" of approaches from private equity, the reception has been somewhat "frosty", she maintained.

This partly stems from renewed pressure from competition authorities, Lund-Yates said, pointing to the UK Competition & Markets Authority's recent intervention in Microsoft Corp's takeover of Activision Blizzard Inc.

The CMA recently said it would block planned Microsoft's planned USD75 billion takeover of the Call of Duty, Candy Crush and World of Warcraft maker over competition concerns, prompting Microsoft to launch an appeal.

The episode was seen to "embody the challenge facing the UK", Lund-Yates said.

"The region is seen by some as a less accommodating place in which to do big business, and this could have implications across UK valuations," she warned.

"Companies that may, in theory, be prime takeover targets could have some of that premium taken away or muted, as investors think twice about the likelihood of bidders coming to the table in the current climate."

By Elizabeth Winter, Alliance News senior markets reporter

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