The London stock market is experiencing significant turbulence as 2024 continues, witnessing the most pronounced decline since 2010 due to increasing numbers of takeovers. A total of 45 companies have dropped off the London Stock Exchange this year alone, representing the fastest rate of decline for over a decade, as reported by Bloomberg.
This wave of mergers and acquisitions has contributed to the shrinking of the UK stock market. The volume of deals targeting British businesses has surged by 81% this year, exceeding $160 billion. This influx includes major buyouts by foreign private equity firms, which are cashing in on UK equities trading at record discounts—more than 40% less than their global counterparts.
The recent acquisitions highlight just how desirable UK companies have become for investors seeking value. For example, U.S.-based Starwood Capital Group has successfully concluded its acquisition of Balanced Commercial Property Trust Ltd. for £674 million, equivalent to $852 million. Similarly, Sweden's EQT AB has finalized its £2.1 billion takeover of video game services company Keywords Studios Plc.
Investment firm Thoma Bravo has also been active, finalizing its $5.3 billion purchase of cybersecurity software provider Darktrace Plc. These strategic moves by major foreign firms underline the UK market's appeal to those hunting for bargains amid its current valuations.
Market expert Liad Meidar, managing partner at Gatemore Capital Management, sounded the alarm on the UK’s competitiveness, emphasizing the need for reform: “Unless the UK gets its act together, it’s going to continue to lose ground and relevance.”
Among the high-profile deals is the proposed acquisition of Royal Mail’s parent company by Czech billionaire Daniel Kretinsky, estimated at around £3.6 billion. Danish brewer Carlsberg A/S is also set to buy UK Pepsi bottler Britvic Plc for £3.3 billion. These transactions demonstrate how foreign entities are increasingly directing their acquisition strategies toward British corporations.
Despite this surge of foreign interest, several UK companies are contemplating moving their primary listings abroad. Notably, Just Eat Takeaway.com NV and Flutter Entertainment Plc are among those considering abandoning their London listings, signaling potential longer-term consequences for the local financial ecosystem.
The decline is compounded by the disinterest shown by investors toward new initial public offerings (IPOs) on the London Stock Exchange this year, with only 11 IPOs completed so far, resulting in $1 billion raised—an 11% drop compared to the previous year.
Considering the challenges faced by UK-listed firms, some executives are raising the alarm about the high costs of trading. Nikolay Storonsky, co-founder and CEO of fintech firm Revolut, has voiced serious concerns, labeling the London market as “much worse” than the U.S. due to issues such as liquidity and higher tax burdens. On the 20VC podcast, he pointed out how trading costs, such as the stamp duty tax of 0.5%, hinder the market’s competitiveness.
“If you look at trading in the U.K., you always pay a stamp duty tax,” Storonsky explained. “I just don’t understand how the product which is being provided by the U.K. can compete with the product provided by the U.S.” These remarks underline the urgent need for the UK government to address these financial market disparities.
With the stock market's stability at stake, Alastair King, the newly appointed Lord Mayor of the City of London, echoed Storonsky's sentiment about reforming the stamp duty issue, stating, “We should look again at stamp duty imposed on trading in U.K. shares.” He believes recalibrations could illuminate pathways for local companies eager to scale nationally.
Although the London Stock Exchange Group has defended its market by asserting broader primary stock offerings are still more active compared to other European exchanges, the shadows of de-listings loom large. With growing concerns about the market's attractiveness, it remains to be seen what measures will be taken to rejuvenate investor confidence and curb the exodus of companies from British shores.
The increase both in mergers and acquisitions showcases the shifting tides of the London market, sparking debate about its future viability. The dynamic is compelling, marking perhaps a crossroads for investors who traditionally placed their bets on British equities.
