Takeover Talks: Tomorrow Never Knows

Jade Jack:

Hello and welcome to our fourth podcast in our series on UK public M&A. My name is Jade Jack and I'm an adviser on public company matters here at Ashurst. I'm delighted to be joined once again by London partner and head of our EMEA public M&A practice, Tom Mercer, and by our longstanding interviewee, Harry Thimont. Both of whom are specialists on all things takeovers related.

Earlier today, we published our annual review of the UK public M&A market in which we summarised some of the trends we saw in 2025. We look back at the key legal and regulatory developments in the year, and we give some views on what we think 2026 could hold.

So Tom and Harry are here today to talk through some of those points. And taking you first, Tom, 2025 was another mixed bag for UK M&A with very patchy activity throughout. What are your headline thoughts on the year?

Tom Mercer:

Thanks, Jade, nice to be talking to you and Harry again today. Well, what to say about 2025? Continuing on from several years of unpredictable markets, starting with the advent of the pandemic and pretty much every year since, 2025 was another unpredictable year, and I shudder to think what we might think if we look back on our predictions at the start of last year and how things panned out.

What was interesting and noteworthy was that global markets demonstrated impressive resilience in the face of significant change, including, of course, the first hundred days of the Trump administration and all that went with that. What we saw in the UK, perhaps surprisingly, was a very strong period of activity in the spring with a lot of transactions launching and then us all being very busy over the summer months executing them. But a market slowdown in the autumn, which a number of observers have ascribed to the heavily trailed budget, which interestingly, we sense in terms of corporates and corporate M&A activity, did not land too badly.

And as a result, our sense going into 2026, which has been borne out by initial activity levels in the first few weeks of January, is that there was a lot going on under the surface at the end of 2025, which was deferred, but will re-emerge in the coming quarters. And that being the case, and on the assumption that 2026 was, in any case, going to be an active year, we expect people to be very busy on the UK public M&A front.

Jade Jack:

Thanks, Tom. And Harry, same question to you, please.

Harry Thimont:

Thanks, Jade, and nice to be talking to you again. So perhaps just to touch on the public markets overall, I think as Tom alluded to, there were some pretty substantial swings throughout 2025, but on balance they traded well. And I think at the beginning of the year, the FTSE 100 went over 10,000 points for the first time ever.

Within that, traditional stocks, financial services, resources performed particularly well and I think that had a benefit on the FTSE 100, as I just mentioned, which went up more than 20% in 2025 and then topped 10,000 points at the beginning of 2026. And I think the net effect of that is also to correct some of the perceived undervaluation that we've heard an awful lot of in the last few years around UK stocks.

I probably can't get away without mentioning AI as well. That's been in the news for a whole host of reasons, and particularly in the US, AI and AI-related businesses having increasingly high valuations. I think the combined market cap of the so-called Magnificent 7 now makes up roughly a third of the S&P 500. And as a result of that, one of the talking points is how sustainable these valuations are and whether in 2026 we might see a crash a little bit like what we did back in the early 2000s with the dot-com bubble.

Now, I'm probably not best placed to answer that question, but I think what I can say is that from an M&A perspective, any form of crash which is akin to what happened following the dot-com bubble will invariably have a significant effect on deal doing, certainly in the short term. And I think it's probably fair to say that even without that, deals in the tech sector and adjacent sectors to tech could start to struggle, particularly where there isn't common ground on both sides on valuations.

Jade Jack:

Thanks, Harry. And I think you're right, it's very difficult to talk about anything in the markets without mentioning AI. Just focusing on the UK public M&A market a little bit more, what were your high-level takeaways from that?

Harry Thimont:

Well, I think the UK public M&A market in common with M&A markets generally is always susceptible to significant geopolitical economic events, and we certainly saw a few of them in 2025, as Tom alluded to.

We did also see that run of offers certainly in what I'd describe as the middle half of the year, so starting in spring and then going into the summer, but there was a clear drop-off of activity in the last quarter, and certainly the last couple of months of the year.

Now, I think in the UK, part of that can be explained by the fact that we had a relatively early announcement of the budget, but that it was only going to become quite late, i.e. at the end of November. And I think one of the impacts of that was that we didn't have the usual close to two-month period from early November through to Christmas in order to get deals done.

In reality, there were only a few weeks from late November, and it's very hard to get things done from a standing start in that short period. However, I think what that will hopefully translate into is that those deals that were put on ice as a result of the uncertainty created by the late budget and the fact that in the period leading up to it, there were a whole host of policies that were trailed, but relatively few ultimately enacted, I think what that will hopefully mean is that the deals that were put on ice as a result of that will come back in 2026. And again, as Tom suggested, could lead to a very strong year for UK M&A in 2026.

We did also see continued competition for attractive assets. We didn't have a Panel auction. I think the last two Panel auctions remain the ones that we did a few years back being Morrisons and Augean, but there was still some pretty hefty premium being offered even on the higher value assets. So the premium on the Spectris takeover was over a hundred percent.

More generally, deal volume was slightly up compared with 2024, but deal values were significantly down and there were certainly fewer, the big-ticket, one billion plus firm offers that we saw in 2024, albeit they didn't go away entirely. I mentioned Spectris, Assura, and we also saw a competitive situation involving JTC, which I think demonstrates that it is still possible to get the financing in quite a big way for the right assets. And as I mentioned, I expect that we'll see more of that coming to the market in 2026.

Jade Jack:

And just picking up on that competitive element, in particular, I think the interaction between financial sponsors and strategics has been really interesting, Tom, can you comment on that a little bit more?

Tom Mercer:

Yeah, certainly. What was interesting in 2025 was that in every competitive situation we saw or were involved in, a financial sponsor was also involved either on its own or along with a portfolio company whose combination with the target was expected to yield significant synergy benefit.

What's also interesting is that there wasn't any particular pattern as to whether the financial sponsor beats any strategic rival. So we saw Blackstone overcome a strategic competitor to effectively win out on warehouse REIT. On the flip side, we saw PHP prevail over KKR in relation to the acquisition of Assura. There's no particular pattern there, but what is interesting as a result of the competition between strategics and PE, I think is that the deliberation the target board needs to go through when deciding how, in conjunction with the Panel that oversees UK takeovers, competitive situations are resolved.

And that's going to be a theme I think that continues in 2026 and is going to be particularly interesting where, as we saw in a few cases in 2025, you've got an acquirer on the one hand that has a potential regulatory risk in terms of completion and certainly a regulatory timetable versus another, perhaps a private equity bidder that doesn't.

And there are some quite interesting technical deliberations, which the board of the target will also get involved in around when you try and resolve competitive tension during the Code timetable. So we expect a lot more of that this year as competition for UK assets continues.

Jade Jack:

Thanks. That's a really interesting point, particularly around the timetable. And I think competition's thrown up some interesting developments more generally this year. So I think we're seeing bidders much more comfortable switching between offers and schemes. Stake-building has come back, which is always fun. It was used to really good effect on the Blackstone Warehouse REIT deal, but it's also been seen in a number of other situations.

And I think one of the points, and this comes to the private equity point as well, that we've seen over the last few years, is the use of alternative offer consideration. So whether it's CVRs, deferred consideration, or simple unlisted stub equity. And in the context of that, the Panel published some guidance earlier in the year, so Practice Statement 36. And that just really tried to unpick how the Executive interprets and applies the relevant rules in respect of unlisted share alternatives, in particular, General Principle 1. I'd be really interested to hear your thoughts on that, maybe Tom.

Tom Mercer:

Yeah, thanks, Jade. This is an interesting area because whilst stub equity is not a new thing, the use of unlisted securities alternatives in 2025 was much more significant than in previous years. In some cases, quite situation specific because of founder-led sale processes of target companies where the founder wanted some form of rollover. In others potentially as a way of bridging value gap or persuading recalcitrant funds that were able and have a mandate to accept unlisted securities to accept an offer.

From a Panel perspective, unlisted securities are an interesting proposition because the reality is, and the Panel are aware of this, in many cases, the terms of the unlisted securities alternative will effectively be designed in negotiation with a single shareholder, perhaps a founder. And the general orthodoxy under the Code is that that is okay, notwithstanding the requirement that all shareholders are treated equally as regards both information and opportunity, because the information shared with the shareholder in the private negotiation of the unlisted securities, and then indeed the offer of unlisted securities themselves is shared with everyone else following the Rule 2.7 announcement.

And as a general principle, that hasn't changed, and as a general approach, that hasn't changed. But it's interesting observing that in Practice Statement 36, the Panel have effectively required people, guided people that they need to tighten the screws, so to speak, on the way this is done, so that the way in which a negotiation of an unlisted securities alternative is conducted doesn't effectively confer preferential treatment on a single shareholder, particularly in terms of relevant thresholds in the unlisted securities and governance rights. And I suspect the Panel's view is that in 2025, the general principles around equality of treatment of shareholders were tested by some of the unlisted securities alternatives we saw in the market.

I do also think there's a general Panel concern here around appropriate levels of information which shareholders, particularly smaller shareholders, need to digest and understand the risks associated with unlisted securities alternatives. But interestingly, and I suspect the Panel will be concerned if this was the case, that Practice Statement 36 is going to diminish the use of unlisted securities alternatives.

Indeed, I think particularly as we see changes in the UK fund management industry, you may find more shareholders, perhaps even shareholders who traditionally would've preferred cash, being interested in elections for unlisted securities alternatives, and that may fuel further deals that we haven't seen before or wouldn't otherwise have happened on a pure cash basis. So an interesting development and one to watch in 2026.

Jade Jack:

Thanks, Tom. Yes, I think it's a really interesting area for all of the reasons that you've mentioned. And moving on to 2026, so an unfair question, perhaps not least given what has happened over the last few years or even over the last few days, to be honest, but could I ask for some predictions from both of you for 2026?

Tom Mercer:

Why don't I go first? There's one thing I would call out, which isn't a particularly novel point, but I think levels of shareholder engagement in UK public M&A will increase. They've been increasing in fairness over the last few years. Certainly if you cast your mind back 10 years ago, I think we would probably say there was actually a bit of a problem with shareholder apathy in UK public M&A, certainly institutional shareholder apathy. But that seems to have gone now.

In fact, I think you'll see shareholders getting much more engaged and willing to take war crossings earlier to get involved in public processes. And I think it splits two ways. On the one hand, I expect you may see, particularly in the mid-caps, shareholders being more interventionist, and in some cases demanding that companies consider their strategic options, including potentially utilising the Panel's relatively recent guidance on private sale processes to de-list companies, particularly if it's a company with an irregular shareholder base on low liquidity and its stock.

On the other hand, that continued issue we've had around bridging valuation gaps may mean that where that gap isn't bridged, or at least not bridged in the eyes of shareholders, you see more adverse intervention in M&A with deals being jeopardised by shareholder reaction and rejection of transactions. So I think for us lawyers, there'll be a lot more advice around how shareholder interaction can be securely conducted in accordance with MAR and the Takeover Code, and shareholder involvement will play a bigger, bigger role in the outcome of UK public M&A transactions.

Harry Thimont:

At the risk of jumping on the same bandwagon, I think that's absolutely right. I do think that ongoing and increasing shareholder engagement is going to be one of the key themes this year. And I think, Tom, you've talked about it in the context of public M&A. I think it's going to be true in the context of UK PLC M&A generally, as in yes, we've certainly seen how shareholders can insert themselves into public M&A processes in 2025, but I think there will also be a continued push in certain situations, not necessarily for a company to be taken over or taken private on the basis that shareholders don't necessarily always want to exit, but pushing to do something.

And I don't have any data to hand on this, but my sense is that in 2025, we did also see more non-core disposals, sales of divisions, sales of businesses, whatever it might be, i.e. private M&A being done by UK PLCs as a result of strong shareholder engagement and effectively pushing companies to consider those routes potentially as an alternative to being taken over on the basis that greater value could be generated by selling a particular division, say, returning those proceeds to shareholders as against accepting a takeover offer at a particular price where we've obviously heard about the persistent undervaluation of the UK equity markets.

And I think perhaps the only other point I'd add, again, building on what Tom said in terms of the use of stub equity, I totally agree that I think that is going to be another area of real interest in 2026, and we're going to see an awful lot more of that. And I think part of that is anecdotally, we've started to hear that some funds that perhaps historically have been unable to hold unlisted paper, may be looking to change their mandates such that they are able to do that more easily.

And that's really on the basis that they don't necessarily want to exit in every takeover situation and finding a way in which they can continue to remain invested is quite important. So as I said, I think that's going to be another area of real interest in 2026, and it'll be interesting to see how that practice develops.

Jade Jack:

Yeah, it's really interesting. Thanks both. Well, I think that's probably our time up. So firstly, thank you to both of you for your time and to our listeners for joining us. We hope you found it interesting. For the full annual report and for more information on our public M&A group, please take a look at our website. And of course it goes without saying, that if you would like to discuss any of the points raised in the materials or have more general questions around UK public M&A, please do get in touch. You'll be able to find all of the team's details on the website. Thanks again for your time, and please do share the podcast with interested colleagues. Bye for now, and until next time.