Peel Hunt M&A Monthly - Transactions subject to the UK Takeover Code

Over the third quarter, UK takeover activity continued at prior levels, with just ten firm offers announced. Eleven further companies entered offer periods at an earlier, possible offer stage, while two companies launched formal sale processes.

The focus of activity has been clear with smaller AIM quoted companies being taken private by financial
sponsors and/or management teams. The average transaction size over the past four quarters (excluding
Dechra and Network International) has been just over £200m, versus over £1bn over the prior eight quarters.
In many cases, a large management shareholder has provided the key to unlocking a transaction, symptomatic of the questions being raised over the value of a listing to smaller corporates with limited
liquidity and a share price dislocated from fundamental value.

As interest rates stabilise, confidence starting to return and with valuations remaining attractive, there are some early signs of increasing UK takeover activity. We are also seeing that private equity interest in UK plcs is being met more often with a receptive management team. We therefore expect increasing sponsor-led M&A activity moving into 2024, particularly at the smaller (<£250m) end of the listed company market.

Larger corporates are also increasingly conscious of M&A as a way to unlock value, both in terms of targeted
acquisitions and selective carve outs of non-core assets. We anticipate that this will be a further driver of M&A activity in the short to medium term.

The ongoing Pendragon situation with competing interest from four large overseas corporates underlines
the high quality of certain assets in the UK and the opportunities available to equity market investors and/or potential acquirers.

Trends | Management shareholders

Small companies have remained in focus for UK plc takeovers, with an average undisturbed
market cap of companies who have commenced offer periods in Q3 2023 of c.£190m (excluding

Of the 22 UK plcs who commenced offer periods in Q3 2023, only 6 reside on the Main Market,
with the remainder on AIM.

While financing for large take-private transactions remains tight, smaller cheques are easier to
write, sustaining ongoing volume at the small/micro cap segment of the market. In the light of
current low trading liquidity, limited access to capital, and supressed and unresponsive share
prices persistently dislocated from fundamental value, increasing numbers of smaller companies
are questioning the merits of remaining listed, fuelling the supply side of transactions.
On the demand side, whilst absolute volumes are down in Q3, with 10 firm offers (vs 15 in Q2
and 12 in Q1), private equity has been the clear marginal buyer representing 70% of firm offers
in Q3 2023, vs c.50% in Q1 and Q2

View the full M&A monthly here.