London’s stock market is bleeding market capitalization at a rate of more than $2 billion per week, and the cause isn’t a crash, a scandal, or a macro shock. It’s something arguably more concerning for the long-term health of UK equities: companies keep getting bought and taken off the exchange entirely.
The cumulative value of takeover deals involving London-listed companies has now crossed $60 billion, a milestone punctuated by OCS Group International Ltd.’s £3.1 billion ($4.2 billion) acquisition of Mitie Group Plc on July 21. That deal landed just days after ABB Ltd. revealed a $5.5 billion takeover of Rotork Plc. Arlington Capital Partners is also in the process of purchasing Gooch & Housego Plc for approximately £400 million.
The mechanics of the Great British Takeover
Foreign acquirers and private equity firms are finding UK-listed companies irresistibly cheap relative to their US or European peers. Market analysts have described this pattern as the “Great British Takeover,” with some characterizing it as “strip mining” — foreign entities attracted to the comparatively favorable valuations of UK businesses.
The Mitie deal is a useful case study. The facilities management giant was a FTSE 250 staple. Rotork, an industrial flow control specialist with a $5.5 billion price tag, is following the same exit path. The recent series of takeovers spans various industries including facilities management, industrial components, and photonics.
What’s driving the discount
The UK market has struggled for years to attract retail and institutional flows. London’s IPO pipeline has thinned. Several high-profile companies, including semiconductor designer Arm Holdings, chose to list in New York instead.
What this means for investors
For shareholders in companies that get acquired, the short-term math is usually favorable. The Mitie deal, the Rotork transaction, and the Gooch & Housego buyout all represent paydays for existing investors who were holding shares priced below what acquirers deemed fair value.
Every delisting shrinks the universe of UK-listed equities available to investors, particularly those constrained by mandates to invest in domestic stocks. When $2 billion in market cap disappears every week, the compounding effect on market depth is significant.