Foreign takeovers risk turning UK into an ‘incubator economy’
The UK is facing a time crunch to avoid becoming an “incubator economy” as foreign takeovers continue to sweep the London market.
A collection of top venture capital investors and founders have called for crucial reforms to the markets ecosystem with a focus on pensions and the IPO environment.
The reforms, as outlined in a report by think tank the Purposeful Company, would pry open £1tn of capital into the country’s tech sector, its research suggested.
Julia Hoggett, chief executive of the London Stock Exchange, said: “We have no shortage of consequential, purposeful companies scaling at pace.
“But, we will do those companies a disservice, and indeed the nation a disservice if we do not ensure that we have the capacity to back them with domestic risk capital.”
It comes amid a growing trend of London-listed firms being taken private by foreign investors, lured in by British public companies’ low valuation versus their American competitors.
Earlier this year, pensions insurer Just Group was bought off the London Stock Exchange by Canadian insurance giant Brookfield Wealth Solutions. Deliveroo is also set to be taken off the City market after its £2.9bn takeover from US rival DoorDash.
“Ensuring that companies can start, grow, scale and most importantly stay here requires the UK to support its own innovators and have the public policy to do so,” Hoggett said.
Boost investment to save ‘flat-lining’ economy
The report said constraints were “trapping the UK in the role of an incubator economy” where it was investing in firms to start-up but structurally “ill-equipped to scale them into global champions”.
The think tank called for the creation of a pension “super fund” to support crucial later-stage VC funding, support IPOs and boost the ailing stock market, with a longer-term goal of building a funded national state pension.
Nearly 80 per cent of UK venture capital investors have never backed a company with a valuation above $1bn (unicorns) or revenue topping $100m (thoroughbreds), according to the research.
Will Hutton, co-chair of the Purposeful Company, said: “Britain is at five minutes to midnight.”
He warned the country must “mobilise capital” to back the next generation of entrepreneurs or risk failing “to maximise this opportunity and deliver the change our flat-lining economy urgently needs”.
The campaign also called for a boost to retail investment through reducing stamp duty, improved financial literacy and stronger equity research coverage.
Nick Lyons, chairman of Phoenix Group and former Lord Mayor, said: “These proposals have been widely endorsed within Canada.
“Now we need to implement at pace”.
Bargain Britain snapped up
The rallying calls come after a glum year for foreign takeovers on the City market, which have raised concerns over the cheapening of UK equities.
Over half of overseas buyers came from the US piling onto the draft of delistings hitting the City market.
In just the span of 24 hours a trio of tech takeovers hit London with a combined value of £6.3bn. This included New York’s IonQ snapping up UK quantum darling Oxford Ionics and US private equity giant Advent making a play for testing equipment specialist Spectris.
In July, the boss of the UK’s financial watchdog sounded the alarm on the “range of issues” weighing on Britain’s public markets.
“There is this question around how attractive UK companies have become, particularly to US buyers,” Rathi said, adding that the UK’s listing rules were not to blame for a lack of IPOs.
Just last week, newly-released analysis suggested foreign takeovers would propel the UK’s M&A volumes above £50bn for the year, with a major push coming from the US.