New data has revealed how smaller companies are substantially undervalued and ripe for takeovers.
People investment planning in Cheshire and elsewhere are therefore being nudged by fund managers to pay attention to private equity firms buying up smaller enterprises.
On the UK stock market, smaller companies (or small caps) are becoming increasingly attractive to takeover bids – in large part due to cheap share prices or an absence of interest elsewhere. As such, this offers real opportunities for smaller investors.
According to Abby Glennie of Abrdn (formerly Aberdeen Standard Investments), these discounts may reflect a lack of upbeat sentiment but, as a consequence, offer rich pickings for shrewd investors.
Figures for the last 18 months show that the average premium paid for small company takeovers compared to undisturbed share prices is over 50%. This suggests buyers are seeing value in them that investors are missing.
There is some evidence that the tide may already be turning for UK small caps, with data showing current trading at a discount of 14.6% to their 10-year average compared to 23.4% in March. The most activity has been in tech and media in telecoms, with retail not far behind.
Buyers include European and US private equity firms, as well as corporate strategic buyers from the UK, US and mainland Europe.
According to analysts, UK small caps will continue to woo interest while they are undervalued. While this activity hasn’t as yet translated into a significant change in pro-UK business sentiment or flows into the asset class, the foundations are in place for a turnaround.
