Bankers could reap record bonuses from a ‘supply wave’ from overseas buyers for British companies, which have become temptingly cheaper against the dollar as a result of the pound’s collapse. A renewed frenzy of M&A activity would mean a surge in payouts for city dealmakers.
Sterling fell almost 5% on Monday to $1.0327, its lowest level since the UK’s decimal in 1971. The currency is down more than a fifth against the dollar this year.
Richard Bernstein, founder of wealth management firm Crystal Amber, said: “We can expect a wave of offers from foreign buyers for British companies. Your profits obviously won’t be worth that much in dollars, so asset-backed situations and brands are the most valuable.”
In February, UK bankers rallied some of the biggest bonuses since before the 2008 financial crisis, partly on a cascade of takeovers by private equity firms and buyers of US companies prompted by the plunge in UK equities due to Covid lockdowns.
Bank advisory fees were expected to take a hit this year after Russia’s invasion of Ukraine rattled financial markets, particularly hurting confidence in stock listings. However, Liz Truss’ decision to remove the cap on bonuses and the expected increase in takeover activity could give UK bankers a boost.
Bernstein said, “If the deals go ahead, bankers could see much bigger bonuses, which feels hard to justify right now when so many people are suffering from the cost of living crisis.”
Hedge fund tycoon Crispin Odey said the pound’s fall has “obviously” increased the likelihood of takeovers. “We are in the game where [the value of] Assets stay up there even when they go down in real terms,” he added.
Odey said the performance of UK stock markets compared to those in the US, where the tech-heavy Nasdaq has plummeted this year, shows UK companies have retained their value.
According to city sources, 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 takeover. “Brands like Halfords, whose share price has fallen from 350p to 145p this year, or Ocado, which has also taken a big tumble from its highs last year and has long been rumored as a target for Amazon, look like prime candidates . ‘ said one fund manager.
This can also be city advisors Hired by companies looking to strengthen their defenses against a hostile takeover by a foreign buyer. Robey Warshaw, the boutique consultancy that employs former Chancellor George Osborne, has won several such mandates over the past year, including from BT and Sainsbury’s.
Both well-established British brands have foreign tycoons on their share registries that some say are unpredictable: French billionaire Patrick Drahi has become the majority shareholder of BT, while Czech investor Daniel Křetínský holds shares in Sainsbury’s.
“There is now a strong case for a sovereign wealth fund to buy stakes in UK companies at bargain prices at this low level and then be prepared to lavish profits on UK taxpayers for years to come,” Bernstein added.
But buyers could 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 foreign bidders has remained stable.”
Almost half of the new bids for public companies have come from the technology sector, including Canada’s Open Tech Corporation’s £1.8 billion deal for British software firm Micro Focus International and early talks by US private equity firm Company Thomas Bravo on the acquisition of cybersecurity specialist Darktrace.
#Bumper #City #bonuses #expected #takeover #frenzy #pound #hits #record