Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

TODAY was the day shareholders in Morrisons got their chance to rubberstamp a £7.3 billion takeover offer for their company by the US private equity group Clayton, Dubilier & Rice (CD&R). The deal worth 285 pence per share marks the end of a lengthy battle between CD&R and rival suitors led by the Softbank-owned Fortress Investment Group.

Without Morrisons, only two of Britain’s leading grocers – Tesco and Sainsbury’s – remain as London listed companies. ASDA was bought by Walmart in 1999 then sold again last year to the billionaire Issa brothers from Blackburn in conjunction with TDR Capital.

Recent takeovers come as a reminder of how the UK stock market is constantly changing and helps to explain why, for better or worse, the market no longer reflects the true makeup of the UK economy.

Corporate activity has been hotting up this year. In the second quarter alone, the total value of foreign takeovers of UK companies increased to £28 billion, from £8.3 billion the quarter before1.

Thanks to an estimated US$955 billion in unspent capital and high company valuations in the US, some of the world’s leading private equity groups have been on the hunt for what they consider to be undervalued international businesses2.

The pandemic appears only to have whetted their appetite. Rebounding economic growth, fractured supply chains and disrupted workforces present opportunities to firms well versed in the reshaping and streamlining of companies.

Back in May, CD&R signalled its intent by purchasing the midcap UDG Healthcare for £2.6 billion. A month later, it was the frontrunner in the race for Morrisons.

Other UK companies to have fallen into private equity hands so far this year have included the infrastructure group John Laing (Kohlberg Kravis Roberts) and the emergency power supplies specialist Aggreko (TDR Capital and I Squared Capital).

Interestingly, new international trade secretary Anne-Marie Trevelyan confirmed this week China is welcome to continue investing in non-strategic parts of the UK economy. Trevelyan is about to host a global investment summit to be attended by 200 leading investors, including Bill Gates and the bosses of BlackRock, JP Morgan Chase and Barclays3.

For investors interested in undervalued UK assets, the Fidelity Special Situations Fund is worth a mention. Featuring on Fidelity’s Select 50 list, this fund invests in unfashionable areas of the stock market and focuses on companies undergoing positive change. It held a significant position in John Laing until the company was finally snapped up by KKR last month.

Current large investments in the fund are insurers Aviva and Legal & General which, among other things, are attractive for their investments in long-dated assets like infrastructure and the green economy. The fund also has a large position in Inchcape, which is benefitting from a strong pricing environment amid short supplies of new and used cars.

The latest Investment Outlook from Fidelity Personal Investing offers a comprehensive view of markets and investments into the end of the year and beyond.


1 ONS, 07.09.21
2 Private Equity News, 22.09.21
3 FT, 18.10.21

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

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