Do Your Own Research

Insightful analyst, fund manager and accountant lan Robertson shares his tips to help investors understand what questions to ask when making investment decisions.

December 20, 2023

The health of the UK stock market – are bankers and the LSE just pulling a sickie

Market Health

The failing health of the UK stock market has been the theme of the year for many analysts, journalists and fund managers’ marketing departments. To say that much of this content has been histrionic, self-serving and highly selective would be an understatement.

In light of that, and because I prefer to base my understanding on facts, I thought it might be a good idea to assemble a slightly fuller record of those companies that have left the London market in 2023 and those that are in processes that could lead to them leaving, along with their reasons for leaving.

In this blog I run through the departures of companies with market capitalisations above £100m, categorised under Consolidation/Globalisation, Private (both Funds and Families), Irish, and Others. I have also included those companies where deals were announced in 2022 and delisting occurred in 2023, and those companies with announcements in 2023 and delistings in 2024.

I will return to the issues facing the sub-£100m cohort in a future blog. There the problem is relatively simple, although the solutions may be unpalatable to some.

The list of departures makes for disconcerting reading but is not a reason for panic. Many of the ‘issues’ are exogenous and common to other equity markets. There are a number of disappointments, but most departures are actually part of wider events and nothing for the LSE to take personally.

Some companies have been taken over; some by other companies listed on the LSE, most by larger companies from overseas. This is normal, and these account for 20 of the 54 companies on our list.

Moves from public to private account for 25 of the ‘departures’ listed here. However, the swallowing up of swathes of UK industry by PE funds has not been the totally dominant feature this year, leaving one to worry if they have taken everything worth having. Some of these deals have been companies being taken away to get sorted out in private – public markets being both impatient and hemophobic. More concerning is that lack of faith in the future ability of the stock market to provide funds was a key driver of the departure for several acquisition-driven businesses.

It is useful to remember that it is wrong to assume that the buyers are paying the correct price. Academic journals are replete with studies setting out the failings of corporate acquisitions, many of which stem from paying the wrong price to start with, and information on PE industry returns is far from complete. Some of these deals illustrate how PE investors can be just as bad as their public market investors.

Not all companies are suited to listed status.  Those that might appear to come under this banner would probably have reached the same endpoint regardless of which exchange they were listed on. It is interesting that, where this has been the case, these companies have often been on the public markets for only a short period of time.

Consolidation / Globalisation

RPS

Tetra Tech’s purchase of RPS, the environmental and professional services and consultancy business, was a carry-over from 2022 and marked the departure of the company from the LSE after over four decades.  Tetra Tech is a broadly similar US business but approximately 4x the size. Globalisation or consolidation; whatever it is, it is a market functioning.  The price paid, 222p or £636m, was a 110% premium to the price before the offer period began and, importantly, a, 8% premium to the bid from rival WSP that it trumped.

Numis

Numis is principally an equities-focused investment banking business.  It’s purchase by Deutsche for £410m is an indication that someone somewhere thinks there is something to go for in the UK market, particularly given that it was at a 72% premium to prior trading.

Shaftesbury

Capital & Counties’ acquisition of fellow property company Shaftesbury was announced in June 2022 but only completed in 2023.  Effectively a merger, the creation of Shaftesbury Capital brought together a significant chunk of the West End property in a portfolio that might hold long-term appeal and interest for equity investors. It now has a market capitalisation of £2.6bn.

Hurricane Energy

Independent UK-based oil group Prax acquired Hurricane Energy for 4.15p per share of £249m.  In theory shareholders could receive further deferred consideration and dividends, taking the price paid to 12.5p. But given that the company floated on AIM at 43p per share in 2014, they should not hold their breath.

Impellam

Specialist staffing and recruitment business Impellam agreed a £483m offer from HeadFirst Global, the Netherlands-based HR services business.  Total consideration, including cash, loans notes et cetera, amounts to a 155% premium to the share price back in April when the offer period started and a 77% premium to the day before the deal announcement.  The fact that Lord Ashcroft owns over 60% of the shares means that this is a far from normal situation, but it does not appear that fellow investors have been badly done by with this London listing.

Curtis Banks

Leading provider of self-invested pension plans (SIPPs) Curtis Banks was acquired by Nucleus Group, a competitor with a wider service offering, for 350p per share, a 32% premium to the share price prior to the start of its offer period. The deal valued the business at £242m, a significant advance on the c.£85m market capitalisation with which it joined AIM back in 2015, at a 190p share price.

CT Property Trust

CT Property Trust was purchased by LondonMetric and as such is still on the market, just within another UK-listed entity.  LondonMetric is in what has been very much the property industry sweet-spot in recent years – logistics. CT Property Trust made sense as a property portfolio deal. Paying £199m was a 34% premium to the prior day’s close but still marked a 6% discount to NTA.

Civitas Social Housing

Hong Kong listed international property investment and development firm CK Asset Holdings, one of Li Ka-shing vehicles, evidently saw a £485m value opportunity in Civitas Social Housing plc, a REIT invested in social housing. The share price chart shows an investment in which the market was losing interest – with interest rates being a key part of that. A tough sell to fund managers, the take-out price is broadly in line with the share price that it had oscillated around for much of its listed existence, but a 44% premium to the prior close.

Aveva

Schneider subsuming Aveva, the Cambridge-based software developer, was announced in the third quarter of 2022 but only completed in 2023.  The price paid, £31 per share or £9.5bn, was a 41% premium to the price prior to news of the offer emerging. Although of greater scale after Schneider reversed its software division into Aveva in 2017 and the OSIsoft acquisition in 2020, the resulting entity was not necessarily of the quality Aveva had once been, and the confusion of the relationship had cast something of a shadow since.  The French firm certainly can’t blame the British stock market or investor base for that.

Emis

United Health’s acquisition of Emis, the healthcare software company, for 1925p or £1243m was a carry-over from 2022 as its completion followed a CMA clearance.  While some might choose to focus on the technology story, the 49% premium to prior trading or the 32% premium to the peak price seen in September 2021, perhaps the key point is that the response of the UK market was ‘who is United Health’. The fact that it is one of the world’s largest companies with revenues of over $300bn and more than 400,000 employees might suggest that the UK market may lack perspective on what is actually going on out here.

Tribal Group

The proposed acquisition by Ellucian, the leading US higher education software provider, of Tribal Group, the leading UK provider, is just good old-fashioned globalisation / consolidation, but the £159.5m price was a 70% premium to the prior day’s trading all the same.

Crestchic

Aggreko’s acquisition of Crestchic, formerly Northbridge, announced in late 2022 but completed in February 2023, makes clear sense.  Crestchic’s loadbanks fit well with the customer and application base of Aggreko and it could well be worth more to Aggreko than to a group of diverse investors, which perhaps justifies the £122m price and 44% premium paid. Reflection upon Crestchic’s trading history and ability to raise funds from the market over a long period of time does raise the question of whether any other market in the world would be willing and able to continue to fund a business on such a basis – a strength (and perhaps also a weakness) of the UK small-cap market.

Micro Focus

OpenText’s £5bn acquisition of Micro Focus, a 2022 deal carried over into 2023, was at 532p per share, just shy of where the shares had been trading prior to the deal announcement. This was a Canadian group of enterprise software businesses that were possibly a bit tired taking over a British group of enterprise software businesses that were also possibly a bit tired. The deal was greeted with thanks by Micro Focus shareholders and some scepticism from OpenText’s investors, but despite the 30% fall after the announcement in August 2022, OpenText’s shares are now back to prior levels.

Fulham Shore

Restaurant company Fulham Shore was purchased by Toridoll, a Japanese restaurant group with global ambitions.  The deal provides UK exposure plus brands and formats it can apply elsewhere. The 14.15p per share was a 35% premium, and at £93m was equivalent to £1m per restaurant.  The noises in the press from its founder, David Page, about his intentions to do it all again for the fourth time with another stock market vehicle don’t suggest that this restaurant industry grandmaster regards the stock market as broken.

ScS

Poltronesofa’s purchase of UK sofa retailer ScS fits with the privately owned Italian sofa manufacturer and retailer’s desire to expand geographically. It is not surprising that where UK fund managers see uncertainty, an ambitious, growth-minded sector expert like Renzo Ricci, Poltronesofa’s CEO, founder and majority shareholder, sees an opportunity. Such differences are only natural.  Having listed in 2015 at 175p (six years after going into administration), ScS looks to be exiting the market at 280p, or £99m, a 66% premium.

Pendragon and Lookers

The North American motor retail industry is increasingly looking overseas for expansion opportunities, and the arrival of North American strategic buyers of UK motor retail businesses has led to the departure of both Pendragon and Lookers.  Although the share price paths have not always been smooth, the motor distributors have generally been well served by the UK stock market over the years; more so if they sold the type of cars that fund managers could countenance buying.

Having had its initial efforts thwarted by Constellation Automotive with its pre-existing 20% holding, the Canadian dealer group Global Auto Holdings eventually acquired Lookers at 130p per share, or £504m, an 8% premium to the initial offer of 120p, and a 47% premium to the price prior to that.

After a somewhat muddled process, involving three bids and multiple deal structures, and a substantial increase in the price paid by the winning bidder, leading US car dealer Lithia managed too secure the agreement of Pendragon’s management to (in summary terms) sell Pendragon’s car dealership business while leaving the software business behind.  It is as yet unclear quite how good the software business actually is.

OntheMarket

OntheMarket was the estate agents’ answer to Rightmove. It had a go.  It didn’t really work as hoped, and someone, in the form of CoStar, the North American property market place provider, has come along and picked up the wreckage at a price of 110p or £99m.  Despite the difficult history, this was still a 50.7% premium to the prior close and a whopping 94% premium to the average over the previous three months. Not a success as a business, but not a failure of the stock market in any way.

Hotel Chocolat

In Hotel Chocolat, Mars looks to be getting, subject to completion, a brand that it would struggle to create for itself, hence the significant premium being paid. Quite what the future holds for the brand and the business within Mars is a moot point here, but it is evident that being listed has worked for the company and many of its owners. The combination of the clear strategic rationale and the controlling position of the two leading shareholders and founders, Angus Thirlwell and Peter Harris, with 27.1% each, meant that the £534m justifiable price for Mars was considerably ahead (170%) of where the public market, without the visibility into Mars’ global playbook and without control, was valuing the shares.

Devro

Devro was once a poster-child UK growth stock.  A very strong position in its core markets, sausage skins and casings, and strong returns made it an investor favourite.  But the drive for growth was not as successful as hoped.  Its purchase by Saria, a significant privately owned German provider of agricultural and food products and services, announced in 2022, raises broader questions about UK equity and debt finance rather than equity markets specifically.  Saria was willing to pay a 65% premium to the prior day’s close, or £540m, and a 92% premium to the day before the receipt of the offer.

Private funds

Medica

Telehealth services company Medica’s purchase by IK partners, a private equity fund, at 212p per share and £269m market cap means that the business leaves the public markets only six years after floating, 10 years after an MBO, 16 years after being purchased by Nuffield Health, and 19 years after being established. The offer of private equity is evidently strongest now, but although the price is a 32.5% premium to the prior day’s close, it is leaving the public arena at a price not far from where it joined the market back in 2017.

Smart Metering Systems

Smart Metering Systems’ predictable income stream from its metering operations has clear appeal for the generic UK fund manager but it also provided the backing to borrow to kick-start the expansion of the business into green energy.  But this was taking the company away from being an infrastructure services business to being more of a core infrastructure business, a completely different long-term financing prospect. Looking at the competitors and how they are funded, principally by infrastructure funds, SMS’s proposed acquisition by KKR infrastructure funds for 955p, or £1.3bn, and 40% premium to prior close looks more like a normalisation (if I can use such a word).

Instem

Instem’s acquisition by ARCHIMED, a French global healthcare fund, is perhaps (alongside Gresham House) one this year’s clearest cases of a public company just seeing a better outcome for itself and its shareholders with a private fund as owners and capital providers.  Drug R&D services business Instem’s time as a listed company, since 2010, was unusually smooth for a bio/medtech business.  ARCHIMED paid £203m or 833p per share, a 41% premium to the prior day’s close.

Ergomed

Permira’s purchase of Ergomed ended a seven-year stint as a listed company year for the pharmacovigilance and clinical research company. It was at a 32% premium to the price prior to the announcement but substantially above where Ergomed’s shares were trading prior to the pandemic. As with Dechra, acquisitions form a key part of Ergomed’s growth strategy.  Ergomed leaves with a market value of £703m, having joined with one of just £46m. Permira has taken on the role that had been quite successfully performed by the small-cap market, although at 21x forward EBITDA it still has a lot of ambition factored in.

HomeServe

Emergency home repairs and improvement services business HomeServe was the first company to leave the London market in 2023 on completion of an acquisition announced in mid-2022.  The £12 per share deal valued the equity at £4.1bn.  In its near two decades as a listed company, HomeServe saw considerable organic and acquisition-driven growth, and delivered strong returns to investors, although the journey was not entirely comfortable or without controversy. The acquiror was leading PE investor Brookfield’s infrastructure fund.

Biffa

The acquisition of leading UK waste management company Biffa for 410p per share, or £1.3bn, was a relatively clean process, being announced in September 2022 and completed in January 2023.  The price paid by US PE firm Energy Capital Partners was 28% above the price at the start of the offer period but below the 445p that had been indicated back in June in Biffa’s announcement regarding approaches. Having been floated off by Severn Trent in 2006, taken private in 2008 and refloated in 2016, this marked the end of Biffa’s second stint as a listed company.  The 2016 float was notable for the dramatic price cut that the PEs took to get it away at what now appears a generous 180p.

DX Group

Delivery services provider DX Group is in the process of being purchased by HIG, the private equity investor.  Its share price path since float in February 2014 reflects a crash and subsequent slow rehabilitation, a process that has accelerated in recent years with investors seeing multiple returns. At 48.5p, or £315m, HIG is paying a 33% premium to the price at the start of the offer period.  While some gnashing of teeth is inevitable at the purchase by PE, along with comments about the undervaluation by the public markets, the question of where the PE folks were when the share price was 7.5p has to be asked.

Sureserve

Sureserve is another people-based support services business that has left the market in 2023, purchased by recently founded private equity fund Cap10.  At a price of 125p and value of £214m, this was a premium of 39% to the price prior to the deal announcement.  Sureserve had floated as Lakehouse back in 2015 at 89p, but after a short time above 100p, its share price had languished for much of its time on AIM until a pandemic-driven rise back above the float level.

DWF

DWF being taken private, by PE firm Inflexion, does raise the evergreen question as to whether professional services businesses should be listed businesses.  Legal and business services provider DWF only floated in 2019. The 100p offer, or £342m, was a 53% premium to prior day, but below the 122p float price.

Dignity

The acquisition of Dignity, the UK’s leading funeral provider, by Sir Peter Wood of Direct Line and funds managed by Phoenix Asset Management is unlikely to have led to many tears being shed.  There was evidently a value opportunity, but it was difficult to see how it could get to that destination in the form it was in, and few small-cap fund managers are set up to get involved in such investments.  The purchasers saw sufficient upside from the £281m price paid and 29% premium required to obtain control and effectively extract the value. Its removal should allow it to be taken outside and sorted out.

Hyve

Hyve, previously ITE, hosts conferences and events and was taken private by Providence Equity and Searchlight at 108p or £481m. Hyve floated in 1998 as a business that operated principally in the former Eastern bloc countries and emerging markets.  It has both grown and transitioned since then but was hit hard by the pandemic. It is hard to see the first 22 years as a listed company other than as an overall success, but the apparent unwillingness of the market to see through to the other side of a rebuild is perhaps a disappointment.

Gresham House

Searchlight’s acquisition of Gresham House for 1105p, or 470m, was at a 63% premium to prior trading and 10% to the peak seen back in April 2022 when the alternatives investment managers was very much in favour.  Given the nature of the business and the progress made by management since the management buy-in in 2014, their comments were bound to be scrutinised for deeper meaning.  It looks like everyone involved is happy with the outcome.  Management gets to bank some gains and to drive the business forward.

Industrial REIT

Blackstone’s deal to acquire Industrial REIT for £511m is of no particular consequence to the stock market. It is a property asset vehicle.  This is perhaps overstating it, but mixing up issues of the best way for investors to gain exposure to the long-term property market with the debate on the wider equity market is only going to confuse things.  The price paid was a 42% premium to the prior close and a premium to the expected NTA.

Network International

The purchase of Network International, a Middle Eastern payment services provider, by Brookfield for £2.2bn marked the return of this business to the PE fold after a relatively short stint on the LSE. It only listed in 2019.  Brookfield’s intention is to bring Network International together with its existing investment in Magnati, another player in the region. Sometimes the UK market can appear to be simply a parking lot for the PE industry.  Exactly what the result of this transaction and strategy will be is unclear. However, when local investors are naturally sceptical about PE vendors from the off, it should be no surprise that these businesses don’t find an immediate fan base and PE has to pay a premium to take them back off the lot; in this case at 400p, a 64% premium to prior trading but still below the 435p float price.

K3 Capital

The £272m acquisition of K3 Capital, the multi-disciplinary services business focused on SMEs, by PE firm Sun European Partners was announced in December 2022, and the shares ceased trading in February 2023. The 350p share price paid was a 17% premium to the share price prior to entering the official offer period but 52% above the price back in September 2022 when discussions had begun. The flotation price in 2017 was 120p – although the chart doesn’t make for the comfortable viewing the start and end points might suggest.

Blancco

Blancco’s purchaser Francisco Partners, a tech focused PE and credit investor, has an extensive portfolio of software and cloud services investments. This would be wholly consistent with its positive view on the end-market prospects for data erasure software business Blancco. Such a positive stance is perhaps difficult to achieve sitting in the UK where ‘datacentres’ means AWS, Google and Microsoft, therefore leaving little long-term room for Blancco’s anticipated independent customer base, and where there is a healthy disrespect for technology-light utility software. As we have seen with other purchases of UK-listed technology companies, it would be wrong to assume that in paying 223p, or £175m, a premium of 25% to the prior closing price, Francisco Partners is necessarily paying the right price.

Dechra

The departure of Dechra, the veterinary pharmacology company, will have been a disappointment to many.  This is supposed to be the type of company that the market can support, and over the years the London market has been very supportive of Dechra’s drive for growth, a mix of acquisitions and organic. The purchasers are ADIA and the Wallenbergs. Standing back, it is easy to see Dechra’s appeal, but also the challenges it faces to move up a league in a competitive industry.  Dechra’s share price had hardly collapsed, but no doubt having been watching for some time, the purchasers made their move.  That said, at £4.46bn, a 44% premium to the prior day’s close, and on an EV/EBITDA of over 20x, they are not getting it on the cheap.

Kin & Carta

Kin & Carta, the old St Ives, is a bums-on-seats ‘technology’ business with a pension fund attached.  There is nothing obviously wrong with it as a business. However, with a business model built around acquisition, and acquisitions paid for in shares and cash and deferred payments, it is not difficult to understand why fund managers might see time and other people’s money better invested elsewhere. The proposed acquisition by Apax Partners for £203m, a 41% premium, might appear to be another case of private equity being able to see through the noise, although the price of 110p is a considerable way shy of the 339p the shares peaked at in 2021.

The Restaurant Group

The Restaurant Group has been a bag of spanners for much of its listed existence, and most investors knew it.  It was always easier to ignore it.  In recent months it was hardly a challenge to work out it was cheap (see our blog on The Restaurant Group), but with broker research recommendations and their backing analysis regarded with disdain, it seems few fund managers took the effort to run the numbers for themselves. The recommended acquisition by Apollo at 65p, or £506m, is a 34% premium to the prior day’s close, it is a 67% premium to the average over the 12 months leading up to the announcement.

Ten Entertainment

The recent news that bowling alley operator Ten Entertainment could return to the private fold, following the recommended offer from Trive Capital, a PE fund, of £287m is not a surprise in a leisure segment that appears to have little product differentiation between the leading operators. It could well find its way back towards the public markets in due course for a repeat run of its 2017 float. The fact that the share price offer of 412.5p is not only a 33% premium to the prior close and but also a 150% premium to the float price might suggest that the PE market can get valuation wrong too.

Finsbury Food Group

The acquisition of Finsbury Food Group by DBAY Advisors, a private equity fund, was announced in September.  An anachronism or a value opportunity might be a bit harsh.  It is not really the role of the equity market to create excitement and change where none is required. Nor is it the role of the equity market to generate yield – that’s what debt does. All the same, the 110p price, £143m, was still a 55% premium to the time when DBAY’s interest in the shares was first disclosed.

Round Hill Music Fund

The departure of music rights investor Round Hill Music Fund from the public market is unlikely to have upset many.  I find it difficult to comment as I cannot fathom why anyone would buy this. It was a bet that the investor was not the greater fool in a structure when the asymmetry in information between the parties involved was simply vast and, furthermore, the value of the income stream, predictable or otherwise, was hugely dependent on interest rates. With the excitement in music royalties having extended to alternative investors too, and with Concord paying a 67% premium or £469m ($1.15 per share), this is perhaps more about human failure than any market failure.

Private individuals or families

Kape Technologies

Kape Technologies’ £1.25bn, 285p per share, purchase by Unikmind – effectively Israeli tech billionaire Teddy Sagi taking back full control and ownership – certainly cannot be seen as a specific LSE issue.  Neither Kape nor Mr Sagi were getting what they wanted from the listing, and it would be hard to argue that Kape would have been any better served on any other stock market.  Internet privacy and security software provider Kape would be too small for US venues.  Although the growth in VPN in the US formed a key part of the investment case, it was not clear exactly when this growth is going to come through.

Mediclinic

Mediclinic, the international hospitals operator, was acquired for £3.7bn by a consortium of its major (c45%) shareholder Remgro, a vehicle of the hugely wealthy South African Rupert family, and Mediterranean Shipping Company, a vehicle of the also hugely wealthy Aponte family.  The Rupert family had been involved in Mediclinic for over four decades while the Apontes were following other shipping dynasties with their move into healthcare.  Although the 504p price paid was a 35% premium to the price paid when discussions began, and substantially above the sub-£3 levels seen back in 2020, it was less than the £7+ seen when Mediclinic joined the market via a reverse into Middle Eastern hospitals group Al Noor in 2016.  I don’t think this says anything about the health or efficacy of the LSE.

The Irish question(s)

Much was made by some of €15.3bn market cap. company Kingspan’s decision in the spring to delist from London, but in reality the majority of its share dealings were in Dublin.  It followed the decision by $46.7bn market cap. Irish construction material company CRH to shift its primary listing to the US. It will be interesting to see just how sustained the CRH share price rise since the start of the year (c60%) will be, although pandemic aside it has hardly been a slouch with its main listing in London.  The question surrounding Smurfit Kappa’s final destination was clarified in September with the news that a deal had been agreed to join forces with WestRock in the US on broadly equal terms (£8-9bn market value a piece), with the intention for the US to be the main listing.  Fellow Irish company Flutter intends to list in the US in the new year but will retain its London premium listing while dropping its Euronext Dublin one, a decision driven by the fact that it sees the bulk of its growth and value in coming years as being derived from the development of the US gaming market.

It is clearly disappointing to see these companies abandon or de-emphasise their London exposure, but their moves all make sense.

Other departures

Polymetal

The cessation of the Kazak silver producer’s shares on the LSE probably needs no explanation.

Trian and Hambro Perks Acquisition

The reasons for these two SPACs delisting also require no explanation.

Dev Clever and iEnergizer

Indian BPO services provider iEnergizer had a market cap of £114m prior to its announcement of an intention to delist in spring of this year and bespoke software developer Dev Clever had one of £257m prior to its suspension at the end of 2021.  Although both qualify for consideration in this list, I think their reasons for departure are best considered in the future blog on the lower end of the market and the issues therein.

Ian Robertson

irobertson@progressive-research.com

 

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