Coronavirus vaccine likely to accelerate demand for UK M&A, with pandemic losers such as Cineworld a
Progression of a coronavirus vaccine is likely to “only strengthen” interest from potential buyers for UK companies following the countries underperformance among global equities, according to analysts at Peel Hunt.
In a note last Friday, the broker said bid activity in the UK is already accelerating, with 14 announced bids and possible bids for listed firms with a total equity value of over £20bn since August.
“UK equities have suffered from a number of country-specific issues during 2020 (in addition to the persistent uncertainty about post-Brexit arrangements), which have added to the impact of Covid-19 and led to underperformance vs other markets”, the broker said.
Lockdown losers in the crosshairs
Among the firms that the broker deemed as in line for potential bids include those in sectors that have been hit hardest by the pandemic and its subsequent lockdown measures driving away customers.
One such firm is Cineworld Group PLC (LON:CINE), which Peel Hunt said will “need additional liquidity to see it through to the return of major film releases” despite a jump in the shares following recent vaccine news and that a refinancing transaction may result in the group “being taken private through a debt for equity swap”.
Also in line could be the UK’s pubs and bar chains, notably Revolution Bars Group PLC (LON:RBG), Wagamama owner The Restaurant Group PLC (LON:RTN) and publican Marston’s PLC (LON:MARS). Peel Hunt said many of the licensed retailers were “valued at a material discount to their historical average rating”, however, they added that they expected corporate activity to focus mainly around private operators.
The broker also singled out one travel stock, Hostelworld Group PLC (LON:HSW), as an “attractive takeover target” given its “low share price and the scope for profits to recover”, although added that some of its obvious buyers, Booking.com and Expedia, have previously declined to acquire the firm and invest elsewhere.
But winners could also see bids coming in
Aside from firms finding their value depressed by the effects of the pandemic, the more general downturn in UK equities has also left some players with long-term prospects exposed to potential takeover activity.
Peel Hunt highlighted that video game developers, which saw demand surge during lockdown, could be prime targets for acquisition by larger players in the sector, citing both Team17 Group PLC (LON:TM17) and Frontier Developments PLC (LON:FDEV) as “great additions for large developers”.
The broker also said video game development services firms Sumo Group PLC (LON:SUMO) and Keywords Studios PLC (LON:KWS) have “some attractive assets” although their wide range of developer clientele could create conflicts of interest and make them less attractive to acquiring developers.
Similarly, Peel Hunt also singled out media firms that have proved resilient during the pandemic as possible acquisition targets, notably Bloomsbury Publishing PLC (LON:BMY) and Scottish broadcaster STV Group PLC (LON:STVG), which it said had a “robust” consumer position with TV advertising set to drive economic recovery from the pandemic.