Trading on equities – merger and acquisitions activity is hotting up after the Brexit vote.

M&A activity comes in fits and starts, but it looks like Britain’s vote to leave the European Union (EU) has ignited a takeover drive in the City. While activity was fairly muted coming into the Brexit vote on June 23rd, there has been more deals since. A sharp fall in the value of the pound has undoubtedly made UK-listed companies a lot more attractive.

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Thomson Reuters data shows there were almost 60 transactions involving foreign companies bidding for British firms in the month after the vote. Combined these were worth $34.5 billion, topping the $4.3 billion seen in the previous month by some margin.

This was dominated by SoftBank’s move for Arm Holdings, the chip maker that has come to dominate the mobile device market.  The £24bn deal valued Arm shares at £17, a 43% premium on the price just before the deal was announced to markets. This was not a cheap deal – Arm was already trading at 50 times earnings before interest, taxes, depreciation and amortisation. It would seem that this prized British asset was just too good to ignore given the fall in sterling.

Meanwhile Steinhoff snapped up Poundland in the aftermath of the referendum. A weak pound was key - sterling has fallen around 20% against the rand this year. Strategically, Steinhoff wants to expanding operations in Europe should act as a useful hedge against rand volatility and exposure to South Africa’s stagnant economy.

Poundland has been struggling with its costly acquisition of 99p Stores, its UK rival in the hyper discount sector and the share price fell enough to make it a juicy target for Steinhoff, which has twice failed to get its hands on a European retailer.

Rejects

 

It’s not all be plain sailing for deal makers in the City. William Hill turned down a £3.6bn bid for the company from 888 Holdings and Rank Group, saying that the offer significantly undervalued the bookmaker.  The suitors have hit back, urging William Hill’s board to listen to the offer. Analysts think that the deal could go through if the offer is increased to 400p – a 20% premium on the firm’s share price.

In another rejected deal, Canada’s Entertainment One could not be persuaded by ITV to accept its £1bn offer. ITV offered 236p a share and most think the UK commercial broadcaster will come back with a better one.

ETO was valued at close to £3.68 in July 2015, before main backer Marwyn Value Investors sold off a big chunk of its holding. Around this time eOne began a series of acquisitions that has hit its price, while a refinancing plan in December sent the stock plunging 20%.

Entertainment One has a good stable of content and is sensibly holding out for a better deal.

As we commented back in April, when rumours of ITV’s approach first surfaced, the deal makes a lot of sense for ITV as it seeks to reduce reliance on advertising and own more content. Terrestrial TV is coming under huge pressure from on-demand services like Amazon Prime and Netflix, which also own a lot of their own content.

ITV has been snapping up production companies as it clearly understands content is vital for its future, but it too could be the subject of a takeover.

A sharp fall in its share price this year and the collapse in sterling since the Brexit vote has left it wide open. The cheap pound makes unique UK assets like ITV very desirable.”