Full transcript
0:00Good morning. Hello, and welcome to
0:03Money Markets and More with me, Dominic
0:05Frisby. I'm walking along the Ridgeway
0:09in central England. I'm about
0:1110 mi or so
0:13south of Swindon at the moment. And the
0:16Ridgeway is Britain's oldest path. And
0:20it's an ancient path that goes all the
0:22way back to the Stone Age. It's a sort
0:24of on a ridge that runs all the way
0:26across central England. And um it was a
0:30good passageway when there was lots of
0:32marsh and forest and so on on either
0:34sides, impenetrable forest.
0:36And uh I'm walking this path for a few
0:38days. And
0:40gives you time to think about stuff and
0:43uh ponder everything that's going on.
0:45And one of the things that is going on
0:48that I wanted to talk about today
0:51is that Britain
0:53is for sale.
0:56And
0:57or sorry, not for sale, being sold.
1:00On sale.
1:02And if you
1:05think about
1:07the '80s and '90s or even the '70s,
1:11you know, Britain was a mess. There was
1:13no industry.
1:15Or industry was in decline.
1:17And nobody quite knew where the next
1:19growth would come from. And then
1:20Thatcher came in,
1:22introduced lots of deregulation, and
1:24that enabled the city to grow.
1:28And yes, it led to the financialization
1:30of Britain,
1:31and the service industry and so on. But
1:33the deregulation also enabled a lot of
1:35growth.
1:36The deregulation wasn't able to go as
1:38far as industry and
1:40unions and so on still had a great deal
1:42of power. So we never quite saw the
1:45the growth there, but we saw it in
1:47services
1:48and finance.
1:51But then after 2008, the financial
1:54crisis,
1:55um
1:58the heavy regulation that came
2:02after that was introduced, the FCA and
2:04so on, to regulate the banking, make
2:06sure it never happens again, and so on.
2:08Pretty much killed
2:11the city.
2:12And
2:13companies have looked at Britain and
2:15they've decided to
2:16do their IPOs elsewhere. You know, once
2:19upon a time you'd have these huge IPOs,
2:21it was very exciting, and
2:23you know, I don't think there's been an
2:25IP major IPO in the city in the last 5
2:28years or so, and
2:30as a sort of global player, it's just
2:32not what it was.
2:34But, there are still lots and lots of
2:36good companies listed on the UK
2:39exchanges. And what we've seen over the
2:41last couple of months
2:43is that
2:45they're being bought.
2:48How do you make money investing in the
2:49UK, uh runs the old joke, buy a good buy
2:52stock in a good um
2:54company and wait for an American to buy
2:56it.
2:57And if the last couple of months are
2:59anything to go by, it's just not a it's
3:01not a joke, it's true. The floodgates
3:03have opened.
3:05So, in June, US ingredients giant
3:07Ingredion
3:09bought Tate & Lyle.
3:11Paid a 59% 60% premium.
3:15Then in July, Castle Lake had been
3:17trying to buy easyJet. They'd put in
3:19five bids, then Apollo came along
3:22and
3:23put in a bid itself that effectively
3:26um
3:27valued easyJet at an 80% premium.
3:31Then Reuters was reporting that Watches
3:33of Switzerland had had takeover talks.
3:37Lots of buyers circulating despite the
3:39shares having risen by more than 50%.
3:42Then Swiss engineering giant ABB
3:46agreed to buy Rotork for billion, 73%
3:49premium to where the shares had been
3:52trading before the approach became
3:53public.
3:55Five days there after that, still in
3:57July, the OCS, backed by
3:59US private equity house,
4:02agreed a 3.1 billion takeover of Myt
4:08then US warehouse giant Prologis or
4:11Prologis
4:13uh returned a best and final proposal
4:16for Segro
4:17valuing the company at 14 billion
4:20pounds, a 45% premium.
4:23And Segro's board, after resisting, said
4:26it would recommend taking the offer.
4:30Few days pass, and then Ridgeview agrees
4:32to buy Pinewood Technologies.
4:35And then Serica
4:37trumps a rival bidder to buy Pharos
4:40Energy.
4:42Meanwhile, the BP announces that it's
4:44leaving
4:45uh the North Sea for good.
4:49An equity research firm
4:51Edison
4:53has estimated that there have been 300
4:56bids
4:58for UK companies in the last
5:01uh 3 years.
5:04Uh sorry, in the last 6 years. 300 bids
5:06for UK listed companies in the last 6
5:08years.
5:09And often at premiums of more than 50%.
5:14So, British investors have spent years
5:15complaining that UK equities are cheap.
5:18Overseas buyers
5:20appear to agree, and they're doing
5:22something about it. They're buying off
5:25British companies.
5:28Private equity still has lots of capital
5:30that needs to be deployed, and the
5:32valuations are extremely compelling.
5:35The fact that the pound has been weak
5:36since 2008 helps.
5:39So, when there's a strategic fit
5:43they bite. You don't pay 40 to 80%
5:46premiums unless you believe the market
5:48is materially undervaluing what you're
5:51buying. London is systematically
5:55undervaluing its companies and the
5:58British haven't been buying. We used to
6:01for decades UK pension funds were among
6:04the largest owners of British shares.
6:08Uh in the in the naughties for example
6:11they allocated just over 50% of British
6:13shares. Now it's just 4%, 5%, 6%. They
6:17favor bonds and global equity funds,
6:20passive investing. ETFs have just
6:23accelerated all of this. So billions of
6:25pounds flowing to global indices every
6:27month
6:28via the ETFs but only a fraction makes
6:31its way back to Britain and the UK
6:33listed companies because Britain now
6:35accounts for such a small percentage of
6:38the world's stock market. And so
6:40valuations fall even if the underlying
6:42individual businesses are performing
6:45perfectly well.
6:48It's a It's a It's an awful cycle.
6:51And many of Britain's companies, quoted
6:53companies, earn their revenues overseas
6:55so they're global businesses with a
6:57London listing.
6:58But they are valued a lot of the time at
7:01significant discounts to peers in the US
7:05and continental Europe.
7:07And these discounts, we've been saying
7:09it for years
7:11but it's finally becoming too tempting
7:13for strategic buyers to ignore.
7:16Now Britain's stock market
7:18it's not just that it's cheap.
7:21It is shrinking.
7:23In 1996 there were 932 companies in the
7:27FTSE All-Share index.
7:29Today there are 536.
7:32This is something that Charlie Morris
7:34has noted. Some have merged, some have
7:36failed, some have moved their primary
7:38listing elsewhere
7:39but many have simply been bought and
7:42taken off the market altogether.
7:45Now, every successful takeover
7:48might leave investors with cash,
7:51but it also means there is one less
7:52quoted company in Britain
7:55in which to invest or reinvest that
7:57capital.
7:58Smaller market attracts fewer investors.
8:01Fewer investors means less liquidity,
8:03lower valuations, and in turn more
8:06takeover opportunities. It's a
8:08self-reinforcing
8:10and vicious cycle.
8:12And London, as a result, has become
8:15perhaps the cheapest market in the
8:17developing world.
8:21Now, this is a good opportunity because
8:23it means if you own UK shares,
8:27uh
8:28you know, there's a good increased
8:29chance that they'll be taken out. You
8:31know, a value investor buys a share that
8:34he thinks offers good value and then
8:35waits for the market to catch up, and
8:37takeovers just accelerate the whole
8:39process. [music]
8:41Not every business gets acquired.
8:45And you think you buy this business cuz
8:46you think it's going to be bought, it's
8:47not always a good idea unless you've got
8:49good information.
8:52But,
8:53if you buy, I suppose,
8:55companies that are undervalued,
8:57financially strong, strategically
8:58attractive,
9:00then a takeover becomes the the
9:02icing on an already or potential icing
9:06on an already attractive
9:07cake. Now, I'm in lots of WhatsApp chat
9:09groups, and I asked one for ideas about
9:12likely takeover targets, and I got this
9:14reply from an eminent newsletter writer,
9:16"At this stage, it's easier to list the
9:18UK companies that won't be sold to the
9:21foreign overlords."
9:23So,
9:25who's going to be next? That's the
9:26question we all want to know.
9:28So, over the next few weeks,
9:31I'm going to be identifying on my
9:32Substack the 10 companies which I think
9:36are most likely to be bought. Put a lot
9:39of research into this, spoken to a lot
9:41of people, I've
9:44read untold amounts of research
9:46material.
9:47And this is all going out in a special
9:50service. Very interesting.
9:52To go over to the flyingfrisbee.com. I
9:55will put a link in the description. And
9:58you know, it's very sad that Britain's
10:01being sold off, but you know, we're all
10:03investors and these are public
10:06if you think you can make some money out
10:07of it, you you may as well do that.
10:10Anyway, thank you very much for
10:11watching. I haven't done one of these
10:12walk and talks for a long time. As you
10:14know, I've been doing lots of interviews
10:16and things. Um, but it's nice to be
10:18doing a walk and talk again.
10:21I shall be continuing onwards with my
10:24journey
10:25on the Ridgeway. And if you don't
10:26already subscribe to this channel,
10:28please subscribe. And if you've got any
10:30ideas about which companies are going to
10:31be taken over or just the bigger issue
10:34of Britain being on sale, post your
10:36comments below and we can have a jolly
10:39jolly good chinwag about it. Until next
10:41time, thank you very much. Goodbye.