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Background and approach

Lexis®PSL Corporate and Market Tracker has conducted research to examine the current trends in respect of UK public M&A. Data for this report has been sourced from the Market Tracker transaction data analysis tool which allows users to access, analyse and compare the specific features of numerous corporate transactions. This is an update to our Market Tracker Trend Report: Trends in UK Public M&A in 2020 in which we examined firm and possible offers announced in 2020.

For the purposes of this update we analysed the period between 1 January 2021 to 31 March 2021 (Q1 2021). While comparisons have been made to the corresponding period in 2020 (1 January 2020 to 31 March 2020) and with the preceding quarter (1 October 2020 to 31 December 2020), definitive conclusions can only be made on the completion of the full year trend report of 2021.

We reviewed a total of 24 transactions that were subject to the Takeover Code (Code): nine firm offers[1] (four for Main Market companies and five for AIM companies), 13 possible offers (nine for Main Market companies and four for AIM companies) and two formal sale processes (FSPs) (both for Main Market companies).

The percentages included in this report have been rounded up or down to whole numbers, as appropriate. Accordingly, the percentages may not in aggregate add up to 100%. Deal values have been rounded to the nearest million (where expressed in millions) and have been rounded to the nearest hundred million (where expressed in billions).

The final date for inclusion of developments in this report is 31 March 2021.

[1] For the purposes of this report we have not included Global Infrastructure’s bid for Signature Aviation, which was withdrawn on 5 February 2021, when Global Infrastructure instead announced a joint offer for Signature Aviation with Blackstone and Cascade.

Deal highlights

The desire to agree offer terms before the end of the Brexit implementation period resulted in a strong uptick in deal activity during Q4 2020. This acceleration in takeover activity in the last quarter of 2020 translated into a sharp drop-off in deal volume and aggregate deal value in Q1 2021.  Key highlights from this report include:

• 9 firm offers (Q1 2020: 8 firm offers; Q4 2020: 18 firm offers)
• £7.7bn aggregate deal value (Q1 2020: £2.4bn; Q4 2020: £22.6bn)
• £859m average deal value (Q1 2020: £300m; Q4 2020: £1.3bn)
• Two £1bn plus transactions announced
• 78% of firm offers were public to private transactions (Q1 2020: 75%; Q4 2020: 61%)
• Overseas bidders were involved in 67% of firm offers announced, including on both £1bn plus transactions.

Deal volume and value

In our 2020 public M&A trend report we noted that deal activity increased significantly in H2 2020 as confidence returned to the market. Q4 2020 was particularly active, with 18 firm offers announced during the period. Q1 2021 saw a drop in deal activity, with nine firm offers announced during the review period. This may have been attributable to a desire by bidders to agree offer terms before the end of the Brexit implementation period.

Aggregate deal value in Q1 2021 was £7.7bn. While this represents a decrease on Q4 2020 (£22.6bn) and Q3 2020 (£10.1bn), it is higher than the aggregate deal values in Q1 and Q2 2020. The largest transaction was the £3.5²ú²Ô offer for Signature Aviation by a consortium comprising Blackstone, Global Infrastructure Partners and Bill Gates’s Cascade Investment.

Average deal value in Q1 2021 was £859m (Q1 2020: £300m; Q4 2020: £1.3bn).

£1bn plus transactions

Two (22%) of the nine firm offers announced in Q1 2021 had deal values exceeding £1bn. The largest transaction was the £3.5²ú²Ô consortium offer by Blackstone, Global Infrastructure Partners and Cascade. Global Infrastructure Partners originally made a £3.4bn offer for Signature Aviation, but this was terminated when the consortium offer was announced. The second £1bn plus transaction announced in Q1 2021 was the £2.3²ú²Ô joint offer for Aggreko by TDR Capital and I Squared Capital.

Deal structure

Of the nine firm offers announced in Q1 2021, seven (78%) were structured as schemes of arrangement and two were structured as contractual offers. This is in line with previous trends where schemes of arrangement have proven to be the more popular choice (Q1 2020: 88%; Q4 2020: 72%).

James Hay Partnership’s offer for Nucleus Financial was originally structured as a scheme, however, following some shareholder dissent surrounding the takeover, this was changed to a contractual offer on 30 March 2020. The bidder cited a desire ‘to increase certainty of execution’ as the reason for the change in structure.

The second transaction to be structured as a contractual offer was Horvik’s mandatory offer for Trans-Siberian Gold. The mandatory offer was triggered by Horvik agreeing to acquire shares representing approximately 51.2% of the issued share capital of Trans-Siberian Gold. Mandatory offers are required to be structured as contractual offers under the Code.

Public to private transactions

In our full year 2020 public M&A report, we commented on the long-term trend of P2P transactions accounting for an increasingly large proportion of public M&A activity each year. This trend continued in Q1 2021 with seven (78%) of the nine firm offers being P2P transactions (Q1 2020: 75%; Q4 2020: 61%). 

Aggregate deal value for P2P transactions in Q1 2020 was £6.7bn, with both of the £1bn plus transactions announced being P2P transactions. This accounted for 87% of total aggregate deal value in Q1 2021.  This compares with an aggregate deal value of £1.9bn in Q1 2020 (79% of total deal value) and £12.2bn in Q4 2020 (54% of total deal value).

Consideration and bid financing

Cash remained king with all firm offers announced in Q1 2021 involving a cash element. One of the firm offers announced involved a mix of cash and shares and one was a cash offer with a share alternative. The remaining seven deals (78%) had cash as the sole form of consideration. This is similar to Q4 2020, where 16 (89%) of deals utilised cash as the sole form of consideration, and two (11%) deals used a mixture of shares and cash.

The cash consideration on Global Infrastructure Partners’ initial bid for Signature Aviation (and the subsequent consortium offer for Signature) was denominated in US dollars, with target shareholders having the option to take the cash consideration in sterling under a currency conversion facility. It is relatively unusual for offers for UK-listed targets to be made in foreign currency, although 2019 saw two such offers (Thomas Bravo’s US$3.8bn offer for Sophos and the US$3.4bn consortium bid for Inmarsat), both of which also featured currency conversion facilities. The decision to structure the takeovers in this way may have been motivated by a desire to protect the bidders from Brexit-related currency swings.

Of the nine firm offers announced:

• four were funded by a combination of debt finance and equity subscriptions to bidco/PE funds
• two were funded solely by debt financing
• one was funded by a combination of debt finance, consideration shares and existing cash resources
• one was funded solely by equity subscriptions to bidco/PE funds
• one was funded solely by equity financing

Bidders country of incorporation

Overseas bidders were involved in 67% of all firm offers announced in Q1 2021. Of the nine firm offers announced:

• four (44%) were made by US bidders
• three (33%) were made by UK bidders
• one (11%) was made from a consortium comprising US and UK bidders.
• one (11%) was made by a Russian bidder

The aggregate deal value for all firms involving overseas bidders was £7.6bn, which represents 98% of the aggregate deal value in Q1 2021. This is an increase from Q4 2020, where firm offers involving overseas bidders accounted 89.6% of aggregate deal value (Q1 2020: 27%). US bidders were involved in both of the £1bn plus transactions announced in Q1 2021.

Industry sector

The most active sector in Q1 2021 was Financial Services, with three (33%) of the nine firm offers announced being in this sector. The remaining offers occurred in a variety of sectors

Hostile and competing offers

There were no hostile offers in Q1 2021, however, two of the firm offers announced in Q1 2021 took place against the backdrop of potential competing offers: the consortium offer for Signature Aviation and the consortium offer for Nucleus Financial Group.

Nucleus Financial Group announced on 2 December 2020 that it was in discussions with four separate bidders in relation to possible offers for the company (see Nucleus at the centre of takeover interest). Aquiline Capital partners and Allfunds (UK) both withdrew from the process on 3 December and 4 December 2020 respectively, and Integrafin Holdings withdrew on 4 January 2021. The final offeror, Epiris, in conjunction with its associate, James Hay Partnership announced a firm offer for the company on 9 February 2021.

Deal in focus: Signature Aviation

Signature Aviation announces that it is in discussions with Blackstone regarding a possible cash offer of £3.83 per share. Signature Aviation also confirms it has received an indicative proposal from Global Infrastructure Partners (GIP) regarding a possible cash offer at a lower price than the Blackstone proposal.  The board rejects the GIP proposal.

Signature Aviation states it would currently be minded to recommend a firm offer at the price set out in the Blackstone proposal.

Signature Aviation confirms it has received an approach from Carlyle regarding a possible offer for the company, although no proposal has been received.

Blackstone and Cascade Investments (a 19% shareholder in Signature Aviation) announce that they have formed a consortium regarding a possible offer for Signature Aviation. Cascade has undertaken with Blackstone that it will not work with any other company on a takeover bid for Signature Aviation.

 The board of Signature Aviation and GIP announce the terms of a recommend cash offer for Signature Aviation. The offer values Signature Aviation at approximately £3.4bn.

GIP, Blackstone and Cascade form a new consortium and announce a firm offer for Signature Aviation, valuing the company at £3.5²ú²Ô. In light of the new offer, Signature Aviation withdraws its recommendation for the GIP offer and GIP withdraws its previous firm offer.

Legal and regulatory developments

National Security and Investment Bill:

On 11 November 2020, the UK government laid before Parliament its draft National Security and Investment Bill (the NS&I Bill), which seeks to introduce a mandatory foreign direct investment (FDI) notification regime in the UK for transactions in certain sectors to protect national security. This new regime will sit alongside the existing merger control regime and replace the current powers for the government to intervene in merger investigations on national security grounds.

The NS&I Bill has passed through the House of Commons and is currently sitting in the House of Lords in the ‘Report stage’. To track the progress of the bill, see our in LexisPSL Competition. For examples of how companies are drafting offer conditions to address the forthcoming regime, see our .

Changes to the Takeover code:

On 31 March 2021, the Takeover Panel announced that it would be proceeding with the amendments to the Code, which were outlined in its October consultation paper. The amended Code comes into effect on 5 July 2021 (implementation date) and makes substantial changes to the treatment of offer conditions and the timetable for takeovers structured as contractual offers.

The Code, as amended, will be applied in relation to all firm offers which are announced on or after the implementation date, except where to do so would give the amendments retroactive effect. Any ongoing firm offers which straddle the implementation date, and any offers announced on or after the implementation date which are in competition with such ongoing offers, will continue to be subject to the unamended provisions of the Code.

For further details, see: .

Possible offers and FSPs/strategic reviews

There were 13 possible offers in relation to 12 targets in Q1 2021. This compares with seven possible offers (in relation to six targets) in Q1 2020 and 21 possible offers (in relation to 13 targets) in Q4 2020.

Of these possible offers, two progressed to a firm offer (TDR Capital and I Squared Capital’s joint offer for Aggreko and TDR Capital’s offer for Arrow Global Group). Of the remaining possible offers, seven were terminated, and four were ongoing during the review period.  

In addition to the 13 possible offers, there were two FSPs announced (Q1 2020: 8 FSPs/Strategic reviews, Q4 2021: 3 FSPs/Strategic reviews) during the review period, both of which were quoted on the premium segment of the Main Market. The FSPs were initiated by French Connection, which launched its FSP after receiving several possible offers, and Renishaw, which announced a FSP after the founding directors indicated their intentions to sell their 53% stake in the company. Both FSPs were ongoing as at 31 March 2021.

Firm offers included in this report

 [2] Horvik is a Cyprus registered company indirectly owned by Vladislav Sviblov.