The FTSE 250 hosts a broad selection of lesser-known mid-cap stocks that occasionally experience massive price jumps. One in particular gained 81.6% in March, with the majority of the gains happening in a single day.
The company? Spirent Communications (LSE:SPT).
Spirent is a British multinational telecommunications testing firm based in Crawley, West Sussex. The company provides automated testing and assurance for networks and security systems with an aim to reduce downtime and business interruptions. It recently began adopting artificial intelligence (AI) to streamline and optimise its solutions.
The UK’s struggling tech sector
High interest rates and inflationary pressures have resulted in reduced spending on technology in the UK. Spirent has been struggling for several years, with its share price experiencing some large falls in 2023. The worst was in the first week of October when it lost over 33% in the space of a few days.
In that week it hit a low of 79p – a huge drop from its all-time high of 310p in September 2021. The lower valuation meant it began attracting interest from US companies looking to acquire UK businesses.
But it’s just one of many UK tech firms that have been approached by US companies recently. The struggling UK economy is making it difficult for businesses to flourish, forcing many to sell out to US rivals. But not all are succumbing. Last month, major electricals retailer Currys turned down a bid from US hedge fund Elliott, despite the offer rising from 47p to 67p per share.
The American connection
The reason for last month’s sudden price increase was a £1bn takeover bid from US telecoms firm Viavi Solutions. On 5 March, Spirent accepted the offer from the Arizona-based firm, causing a single-day price jump of 60%. Then, on 28 March, it rose a further 20% after fellow US tech firm, Keysight Technologies (NYSE:KEYS), outbid Viavi with a £1.16bn offer.
With the acquisition now confirmed, Spirent will be delisted from the London Stock Exchange (LSE) and become a subsidiary of Keysight. Shareholders will be entitled to a special dividend of 2.5p per share in addition to any final dividend for the year ending 31 December 2023.
Keysight is a $28bn tech firm listed on the New York Stock Exchange (NYSE). It develops technological optimisation solutions for governments and enterprises with a focus on the aerospace and defence industry. Over the past 10 years, its equity has risen steadily to £4.81bn. During that time, debt has remained relatively stable at around $1.8bn, cutting its debt-to-equity ratio in half. With $9bn in assets and $4.2bn in liabilities, it has a clean balance sheet.
But the recent growth has pushed up its share price. It now has a price-to-earnings (P/E) ratio of 28.2 – considerably higher than the industry average of 19.1. So the shares could be a bit overvalued and might struggle to make significant gains from here. Forecasters predict very little growth (4.8% on average) over the next 12 months.
Keysight is now one more of a growing list of US companies tapping into the UK market. Since local investors seem disinterested in firms valued under £1bn, we’ll likely see more US acquisitions of FTSE 250 companies.
Whether or not this will be good for the local economy remains to be seen.
