Talking Point  

M&A boom likely to help UK smaller company performance

M&A boom likely to help UK smaller company performance

The increased certainty provided by the UK’s agreed exit from the EU means a wave of merger and acquisition activity in the UK smaller company market, and help drive returns, according to Simon Moon, who jointly runs a range of UK equity portfolios at Unicorn Asset Management.. 

Mr Moon says: “Small caps have outperformed relative to the bigger companies since the Brexit deal was confirmed, and that has removed a substantial amount of uncertainty from markets. This has already started to be felt in terms of the increased number of takeover bids for UK small and mid cap companies, and those things come in waves, we are at the start of another wave of M&A activity because right now, the UK market is good value.”

In the mandates which he runs, he has been increasingly focusing the funds on companies with direct exposure to the UK economy, rather than exporters, as he believes the valuations of the former are more attractive than the latter. 

A particular area of focus for him right now is sectors of the market which are deeply out of favour due to concerns about the long-term viability of their business models due to the pandemic, but where he believes value can be had.

He cited the example of London Metric, a property business which has fallen in line with all other commercial property companies, but he feels that the company's portfolio will be more resilient to the changes coming to the sector as a result of the pandemic than would many of its peers. 

david.thorpe@ft.com