Stock market braced for tech takeover frenzy: Blow to the City as foreign predators target FIVE promising firms
London's stock market is facing a damaging exodus of some of its most promising tech firms after a series of takeover swoops by foreign predators.
The future of the cutting-edge chip designer Alphawave could be decided as early as today after its larger American rival Qualcomm was given until 5pm to table a bid or walk away – though the deadline could be extended.
Alphawave is one of five London-listed tech firms, with a combined value of over £5billion, currently 'in play' as suitors race to cash in on their success.
The flurry of takeover activity has set alarm bells ringing in the City, as experts warn the crisis gripping the stock market is undermining Britain's hopes of becoming a global technology hub.
London is reeling from an exodus of companies and a dearth of new arrivals through share listings.
Analysts said the UK is still struggling to recover from the decision by Cambridge-based chip designer Arm to list in New York in 2023.
Arm is now worth £100billion and would be the fifth-biggest company on the FTSE 100 – and the largest tech stock in the UK – had it chosen London.
'There would have been a halo effect for the UK market as it would have a heavyweight addition which would have stimulated greater activity,' lamented one City source.
Ministers were last night urged to 'move, and move quickly' to revive the stock market and turbocharge Britain's tech sector.
Takeover deadlines loom for two more tech firms next week. Private equity group ICG has until June 11 to secure a deal for analytics and intelligence firm GlobalData, while US buyout giant Bain Capital has until June 13 to agree an offer for Edinburgh-based healthcare tech group Craneware.
These deadlines could also be extended, however.
Meanwhile, London fintech company Alpha Group has been targeted by US payments business Corpay.
And Northern Ireland software group FD Technologies has backed a £570million offer from Boston-based private equity giant TA Associates. The proposed deal now requires approval.
Successful takeovers would see the companies leave the London Stock Exchange, diminishing its standing and that of the City while robbing the country of much-needed tax revenues and even jobs.
And it would follow the acquisition of nine firms in the technology, media and telecommunications sector with a combined value of £10billion last year, including cyber security giant Darktrace.
Charles Hall, head of research at Peel Hunt, said: 'If we are serious about the UK being a centre of excellence for tech companies, then it is essential that we have a vibrant equity market to support them and provide growth capital.
'Government needs to move, and move quickly, to ensure that we retain the firms of tomorrow.'
He added: 'It could all have been so different if Arm could have been persuaded to list in the UK. This would have fundamentally shifted the narrative around UK tech.'
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said a fresh round of takeovers would be 'another blow to London's ambitions to retain and attract more tech firms to list'.
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We really do have incredible innovation and technology being produced over here. They are often mission-critical products.' She pointed to the industrial group Spectris, which saw shares surge by 65pc this month after attracting takeover bids from US private equity firms Advent and KKR. Those bids were at an 80pc premium to its share price at the time, which Farmbrough says 'gives some reassurance around where the valuations for some of these businesses are, and that they are worth a lot more'. Aside from offering the chance to buy stocks cheaply, the comparatively low valuations of companies on London's markets also offers the opportunity for better returns. 'One thing that people don't quite appreciate is what a big component dividends are in the forward returns of your buying a stock,' says Alessandro Dicorrado, who looks after value investing strategy at Ninety One. 'If you're making an investment with a long-term return ... most of that is dividend increases.' Compared with the US S&P 500 and the Stoxx 600, the main stock market benchmark in Europe, the FTSE 100 is relatively cheap to buy. Dicorrado highlights the higher dividends and buyback yields offered by companies across the FTSE compared to the S&P 500 and the rest of the world. One of the ironies of this is that if UK companies remain cheap, they will offer greater returns as it will be cheaper for them to buy back their own stock, increasing the dividend returns and value of the stocks owned by their current shareholders. 'The cheaper a company can buy back its own stock, the more durable income compounds over time,' says Dicorrado. 'Actually, what you want is for the stocks to stay cheap but we also don't want the market to die. So let's try to find a middle ground.' Look under the bonnet and British companies are also humming along more efficiently than some of their global rivals, deploying their capital more effectively. For Farmbrough, the 'real watershed moment' for London's stock market came during the pandemic. Faced with the huge challenges of lockdown, working from home and disrupted supply chains, companies were forced to 'allocate capital much better'. This is illustrated by the improvement in return on invested capital, known as Roic, of FTSE All Share companies over the last 10 years. The metric measures how effectively a company uses the money it has invested to generate profits. Farmborough says: 'There was a real watershed moment in the pandemic particularly amongst the more commoditised industries, where they really woke up to allocating capital in a more accretive way. 'So we think this has been a structural and quite permanent change to the UK market and it has not been reflected in valuations whatsoever.'
