The U.K. is finally joining the global resurgence in mergers and acquisitions.
Pinned down by a brutal Covid-19 outbreak and the worst economic contraction in 300 years, U.K. merger activity slumped in the early summer from the year-earlier period as part of a broader decline amid virus-induced lockdowns. In Britain’s case, uncertainty over the outcome of the country’s complicated divorce from the European Union extended that weakness into early fall.
But the fourth quarter marked a rebound in mergers and acquisitions in the U.K. as a vaccination program raised the prospect of bringing the virus under control. And Britain’s trade deal, which took effect at the start of January, assured companies and their advisers that the country’s exporters won’t face tariffs and quotas selling into the EU market.
The deal revival is illustrated by MGM Resorts International’s unsolicited £8.09 billion, equivalent to $11 billion, bid this month for the U .K.’s Entain PLC, along with takeover battles for U.K. companies Signature Aviation PLC, G4S PLC and Codemasters Group Holdings PLC. At the same time, it reaffirms Britain’s reputation as one of the markets most open to takeover activity.
Though historically common, these types of contests were largely absent last year until 2020’s final quarter. During that period, three U.K. targets attracted multiple bidders. That followed two quarters during the height of the pandemic and Brexit uncertainty when there were no such standoffs. All told there were four last year—the first coming in February, before the pandemic struck Europe, according to Dealogic.
In another sign of the recent strengthening of activity in the U.K., overall merger value in the fourth quarter more than tripled from the year-earlier period to $211.4 billion, following year-over-year declines in the prior two quarters, according to the data provider.
In addition to positive sentiment generated by the Brexit deal and Covid-19 vaccinations, the U.K.’s takeover rules played a key role. Their effective ban in most cases on the use of break fees in deals fosters competition. The fees are meant to offer buyers protection in case a rival offer is accepted. But they reduce the likelihood of a new bid emerging.
“That means the announcement of a recommended offer in Britain is often the start rather than the conclusion of an auction process,” said Anthony Gutman, Goldman Sachs Group Inc.’s co-head of investment banking for Europe, the Middle East and Africa.
The latest bidding contests have centered on sectors that have proved resilient under Covid-19-lockdowns, such as interactive entertainment. In other cases, firms pushed back because of the abnormal market and economic volatility.
On Jan. 4, Las Vegas casino operator MGM confirmed its bid for gambling firm Entain. It represented a 22% premium to Entain’s stock price on the trading day before the proposal became public. And it followed a previous nonpublic, rejected bid from MGM worth about $10 billion, The Wall Street Journal has reported. The British gambling operator rejected MGM’s offer and Entain’s London-listed stock closed at £14.02 on Friday, above MGM’s bid of £13.83.
Entain’s negotiating position to seek a higher offer is strengthened by the support of some of its biggest shareholders. “The first two shots from MGM are not enough,” said Wesley McCoy, a fund manager at Standard Life Aberdeen PLC, which owns almost 6% of Entain, according to FactSet data. “If that’s the only offer we get, that’s fine; c’est la vie.”
It is unclear if MGM will pursue its effort. The company has said it planned to discuss the proposal with Entain. Tyler Tebbs, an analyst at Louis Capital Markets, estimates Entain could be worth around £16 a share, or £9.4 billion, in part reflecting the access MGM would gain to the growth in online betting.
Increased consumer spending on interactive entertainment also explained the interest in Codemasters. U.S. videogame maker Electronic Arts Inc., whose franchises include “Battlefield,” last month offered $1.25 billion to acquire the auto-racing game developer. That was 25% more than a prior bid from rival Take-Two Interactive Software Inc., publisher of “Grand Theft Auto.”
Until Wednesday, Codemasters’ stock had traded above Electronic Arts’ offer as investors bet on a higher bid. But Take-Two bowed out last week, ending the standoff. Still, Codemasters shareholders stand to generate a 39% gain from the day before Take-Two’s first offer becoming public.
The bidding for Codemasters is one of at least three deals in the U.K. involving multiple bidders that emerged publicly in the latter part of last year and have spilled over into 2021.
Global Infrastructure Partners, a New-York-based private-equity asset manager, last week struck a $4.6 billion deal to acquire Signature Aviation, a provider of services to the private-jet sector. That trumps the latest sweetened $4.3 billion takeover proposal from rival PE firm Blackstone Group Inc. The private-jet industry stands to benefit amid the Covid-19 pandemic as rich fliers avoid crowded commercial flights. Blackstone, working exclusively on its offer with Bill Gates’ Cascade Investment LLC, Signature’s biggest shareholder, has yet to indicate if it will challenge GIP’s bid.
Meanwhile, Carlyle Group Inc., another buyout firm, has indicated it might make an offer. Signature’s stock is trading about 6% above GIP’s offer.
Another battle pits Canada’s Garda World Security Corp. against security-services rival Allied Universal Group of the U.S. to acquire U.K.-based rival G4S. The still undecided winner will ultimately pay at least £3.8 billion, or about 69% more than Garda World’s original offer of about £2.24 billion in the summer. Yet investors continue to bet on a higher price.
