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May 10, 2023

Concern grows at small and mid-cap companies over potential takeover bids

One in three respondents cite being ‘very concerned’

More than 30 percent of small and mid-cap UK quoted companies are concerned about being the subject of a takeover bid in the next 12 months, according to the Quoted Companies Alliance (QCA).

QCA’s latest Small and Mid-Cap Sentiment Index was conducted in April with 94 respondents, 77 from small and mid-cap UK quoted companies and 17 from advisory companies. It finds one in three respondents are ‘very concerned’ or ‘somewhat concerned’ by the prospect of an approach.

Notably, 34 percent of small and mid-cap respondents say they feel more vulnerable to a takeover than they did 12 months ago, while 18 percent of advisory companies express the same concern.

The QCA data also reveals that one in six quoted company directors are more likely to consider moving their primary listing within the next year, citing improved liquidity and better valuations elsewhere as their top reasons.

Disproportionate regulation

Meanwhile, delisting is an option for one in seven respondent companies, which flag disproportionate regulation in the UK as the main reason. The surveyed companies say they are turned off by disproportionately high levels of regulation for smaller stocks, as well as a lack of liquidity and significant ongoing costs.

Looking at the key obstacles for companies conducting M&A, 50 percent say financing is an issue while 22 percent view valuation gap issues as challenges.

James Ashton, CEO of the QCA, says: ‘Against a backdrop of improving economic optimism, the fact that quoted company directors increasingly fear takeover speaks to the undervaluation of stocks traded on the London markets.

‘As for those respondents likely to consider delisting or shifting their primary listing away, our sample size is not huge but large enough to indicate how widespread this problem is. We need to keep up momentum with reform plans so that London can be the best home for growth companies to raise capital and develop.’