The M&A boom in the UK market has shown no signs of abating as deals continue to progress. This raises three big questions: who is doing the buying, is the trend sustainable and what does it mean for investors?

Right at the end of July, life insurer and retirement solutions provider Just Group (JUST) became the latest name to succumb – agreeing to a £2.4 billion takeover by Canadian investment group Brookfield.

According to data from broker Peel Hunt the second quarter saw 19 bid situations, taking the total for the first half as a whole to 31. Bid premiums have been pretty healthy at 39%. This is, as Peel Hunt observes, above historic norms and potentially reflects the attractive relative valuations to be found among UK stocks.

As we have observed before, those healthy premiums may be well received by investors in the short term but do little for the long-term health of the UK market and can mean shareholders miss out on even greater potential returns down the line. The same data from Peel Hunt shows just one new IPO with a valuation of more than £100 million in the first half of the year.

Peel Hunt analyst Charles Hall comments: ‘There have been bids for £16 billion of market cap in the FTSE 250 and £4 billion in the FTSE Small Cap and AIM. The scale of departures from the FTSE SmallCap and AIM, should concern anyone who cares about the health of the equity capital markets.

‘The impact on the FTSE SmallCap is much greater than suggested by the data, as a number of constituents will be promoted to the FTSE 250 to replace the companies being acquired.’

As Hall notes, many of the bids have come from individual companies, rather than private equity.

His counterpart at Berenberg Jonathan Stubbs also notes that a lot of the takeover action is being driven from across the Atlantic. ‘M&A activity in the UK is being increasingly driven by US actors, on both a volume and total activity basis. While UK actors slow down, due to high costs of funding, macro & political risks, and sluggish earnings, US actors have stepped up over the last four to five years.‘

Stubbs adds: ‘A wide range of factors drive M&A activity however, it is likely that given cheap-relative global valuations, and decent fundamentals UK M&A activity, particularly further down the cap scale, will continue.’

Elsewhere in this week’s issue you can read about the investment trusts which have delivered inflation-busting increases in their dividend as inflationary pressures begin to dial up again. There’s also a look from James Crux at the trusts which top and tail the leaderboard of performance in the Association of Investment Companies UK Equity Income sector with contributions from their respective fund managers and some excellent insights on short selling from Martin Gamble.

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