Bankers could reap windfall bonuses from a “wave of offers” from foreign buyers for British businesses made irresistibly cheaper by the fall of the pound against the dollar. A new frenzy of merger and acquisition activity would mean increased payouts for city dealmakers.
The pound fell nearly 5% at one point on Monday to $1.0327, its lowest since Britain went decimal in 1971. The currency fell more than a fifth against the dollar This year.
Richard Bernstein, the founder of asset management firm Crystal Amber, said: “We can expect to see a flurry of offers from overseas buyers for UK businesses. Their profits obviously won’t be worth that much in dollars, so asset-backed situations and brands are the most valuable.
In February, UK bankers collected some of the biggest bonuses since before the 2008 financial crisis, thanks in part to a cascade of takeovers of private equity firms and buyers of US companies triggered by the fall in value UK stocks due to Covid lockdowns.
Bank advisory fees are expected to take a hit this year after Russia’s invasion of Ukraine rattled financial markets, shaking confidence in stock quotes in particular. However, Liz Truss’ decision to remove the bonus cap and the expected increase in takeover activity could give UK bankers a boost.
Bernstein said: “If the deals emerge, bankers could see much bigger bonuses, which seems hard to justify at the moment when so many people are suffering from the cost of living crisis.”
Hedge fund mogul Crispin Odey said the fall in the pound “obviously” increased the likelihood of takeovers. “We are in the game where [the value of] the assets stay there, even though in real terms they are shrinking,” he added.
Odey said the performance of UK stock markets relative to that of the US, where the tech-focused Nasdaq has crashed this year, showed that UK companies had held on to their value.
City sources said consumer brands exposed to the impact of rising import costs and interest rates, as well as the cost of living crisis, could be particularly vulnerable to a take over. “Brands like Halfords, which has seen its share price fall 350p to 145p this year, or Ocado, which has also seen a sharp drop from its highs last year and which Amazon has long been said to be the target, look like prime candidates,” said a fund manager.
Councilors can also be hired by companies seeking to strengthen their defenses against a hostile takeover by a foreign buyer. Robey Warshaw, the boutique consultancy that employs former Chancellor George Osborne, has landed several such assignments over the past year, including from BT and Sainsbury’s.
Both established British brands have foreign tycoons on their share books that some consider unpredictable: French billionaire Patrick Drahi has become the majority shareholder in BT, while Czech investor Daniel Křetínský owns shares in Sainsbury’s.
‘There is now good reason for a government wealth fund to buy stakes in UK businesses cheaply at these depressed levels and then stand ready to cash in profits for the UK taxpayer in years to come’ , Bernstein added.
However, buyers may be deterred by the National Security and Investment Act 2021, which came into force this year and is designed to scrutinize and intervene in foreign takeovers of key UK assets.
Analysts at Peel Hunt said takeover activity cooled in August from its peak in June, but “demand from overseas bidders remained firm”.
Almost half of new deals for listed companies were in the technology sector, including Canada-based Open Tech Corporation’s £1.8 billion deal for UK software company Micro Focus International and US private equity firm Thomas Bravo is in preliminary talks to buy cybersecurity specialist Darktrace.