The UK may be hurtling towards the mother of all trick-or-treats with Prime Minister Boris Johnson’s declaration that we’re leaving the European Union come what may on October 31st, but that hasn’t stopped some of the world’s braver investors from knocking on the doors of High Street Blighty.
In just the past few weeks we’ve seen several high-profile takeovers of British firms by opportunistic foreign predators. Peppa Pig owner Entertainment One fell to a £3.3bn bid from US toymaker Hasbro. Defence firm Cobham was gobbled up by Advent, a US private equity firm. And an even bigger £4.4bn swoop by Hong Kong firm CK Asset Holdings took out Greene King.
These deals are interesting for different reasons.
As a supplier to the defence and aviation industry, Cobham is arguably of strategic national importance.
With Entertainment One’s acquisition, the London Stock Exchange has lost one of its few plays on media and intellectual property, with only ITV left standing.
At the other end of the spectrum, Greene King is one of those stodgy asset-rich British companies left behind by the global stock market rally, in part due to Brexit fears.
Yet there was nothing lacklustre about the explosion in Greene King’s share price on confirmation of the takeover.
Anyone lucky enough to be holding its shares saw the value of their investment rocket 51% at a stroke.
Short-term gains
Eagle-eyed readers will notice by the end of this article that this didn’t include me.
Fool rules and regs mean we state it when we hold shares we cite, and sadly I have nothing to declare in the case of Entertainment One, Cobham, or Greene King.
So if you’re sitting there fuming that you missed out on a windfall – I share your envy!
On a professional and even patriotic level, I’m concerned the Brexit-dented pound and our poorly performing market means Britain PLC could be in a knockdown fire sale in the eyes of the world.
We might make a quick buck now, but any Fool (capital “f”!) knows that selling off your best assets on the cheap is no way to get rich in the long run. Whittling down the ranks of listed British companies will make life harder for those of us who ply our trade analyzing and investing in them, too.
On the other hand, if you can’t beat them you’d usually rather join them, and so if there’s family silver to be sold then I’d like to get my grubby hands on my share please!
Selling pressure
I know I’m not alone in this thinking, because there’s been a rash of articles on how to cash in on the anticipated takeover frenzy.
It’s easy to see the appeal.
For financial journalists, speculating about which company will fall next to a foreign predator is much more fun than reporting on a firm’s quarterly earnings.
It’s a chance to sound clever, and to put your best pattern matching abilities on show.
As for private investors, the appeal of having a few takeover targets in your portfolio before they rocket on acquisition is even more obvious.
But I suspect it’s not even just the potential to profit that has us looking for takeover candidates. I believe it’s also an attempt to avoid the pain you feel when you realise you’ve missed out on yet another overnight bonanza.
After all, behavioural economists have shown we feel losses more than we enjoy gains, and there’s nothing so miserable as not owning a share that soars.
Cheap for a reason
There’s a snag with this plan of attack though, which is that as an investment strategy, stuffing your portfolio with companies you expect a bid for leaves a lot to be desired.
Takeovers are only obvious in retrospect. It’s not hard to muse that this or that company is ripe to be acquired, but it’s another thing to actually own the ones that are. Many companies seem to permanently be takeover candidates. The aforementioned ITV is a great example. Year after year it stubbornly refuses to get sold.
At the same time other companies you thought you might remain invested in for the rest of your life vanish from the market in a flash, as suddenly as an eagle plucking a fluffy white bunny rabbit off a sunny lawn.
(ARM Holdings I am looking at you – and no you’re not forgiven!)
There’s another problem, too, which is that companies you think might be acquired – and in some cases put out of their misery – are often not exactly firing on all cylinders.
It’s very easy to buy beaten-up value shares in a sector ripe for consolidation and to never see those expected offers materialise.
You’re left owning poor companies with struggling share prices, wishing you’d invested in something you actually believed in.
Not for sale
Of course there may be some investors out there who are great at judging which companies will be taken over – and with the good grace to succumb to a suitor in a timely fashion, too.
I daresay some even get this edge without snooping in the bins of the big investment banks’ M&A departments for inside information.
But experience has taught me that if you simply must own the firms that will be taken out in the near future, your best bet is to buy them all with a tracker fund – because that way you can’t miss.
Otherwise I think we’re better off continuing to look for companies that appeal for the long-term, rather than those we’re hoping to get shot of ASAP for a quick profit.
