Bankers could rake in bumper bonuses from a “wave of bids” by overseas buyers for UK businesses made temptingly cheaper as a result of the plunge in the pound against the dollar. A fresh frenzy of merger and acquisition activity would mean a ramp-up in payouts for City dealmakers.
Sterling fell by nearly 5% at one point on Monday to $1.0327, its lowest since Britain went decimal in 1971. The currency has fallen by more than a fifth against the dollar this year.
Richard Bernstein, the founder of the asset management firm Crystal Amber, said: “We can expect to see a wave of bids from overseas buyers for UK businesses. Their profits obviously won’t be worth as much in dollars, so asset-backed situations and brands are most valuable.”
In February, British bankers collected some of the biggest bonuses since before the 2008 financial crisis partly on the back of a cascade of takeovers from private equity firms and US corporate buyers triggered by the value of UK stocks plummeting because of Covid lockdowns.
Banks’ advisory fees were expected to have taken a knock this year after Russia’s invasion of Ukraine shook financial markets, notably denting confidence in stock market listings. However, Liz Truss’s decision to remove the cap on bonuses and the anticipated increase in takeover activity could provide a fillip for British bankers.
Bernstein said: “If the deals emerge, 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.”
The hedge fund tycoon Crispin Odey said the pound’s fall “obviously” increased the likelihood of takeovers. “We’re in the game where [the value of] assets remains up there, even if in real terms they’re going down,” he added.
Odey said the performance of UK stock markets relative to those in the US, where the tech-focused Nasdaq has slumped this year, showed British firms had retained their value.
City sources said consumer brands exposed to the impact of rising import costs and interest rates, as well the cost of living crisis, could be particularly vulnerable to a takeover. “Brands like Halfords, which has seen its share price fall from 350p to 145p this year, or Ocado, which has also seen a big slump since its highs last year and has long been rumoured as a target for Amazon, look like prime candidates,” said one fund manager.
City advisers may also be hired from companies looking to shore up their defences against a hostile takeover from an overseas buyer. Robey Warshaw, the boutique advisory firm that employs the former chancellor George Osborne, has landed several such mandates over the last year, including from BT and Sainsbury’s.
Both established British brands have overseas tycoons on their share register who some view as unpredictable: the French billionaire Patrick Drahi has become the majority shareholder in BT, while the Czech investor Daniel Křetínský holds stock in Sainsbury’s.
“There’s now a strong case for a government wealth fund to acquire holdings in UK businesses at cheap prices at these depressed levels and then be prepared to bank profits for the UK taxpayer in the coming years,” 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 closely scrutinise and intervene in foreign takeovers of key UK assets.
Peel Hunt analysts said takeover activity had cooled in August from its peak in June, but that “demand from overseas bidders has remained firm”.
Nearly half the new offers for listed companies were in the technology sector, including the Canadian company Open Tech Corporation’s £1.8bn deal for the UK software firm Micro Focus International and the US private equity firm Thomas Bravo’s early-stage talks to buy cybersecurity specialist Darktrace.
