Small cap movers: Junior market dominates wider stock exchange takeovers

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Takeovers of companies listed on the junior market have dominated London Stock Exchange deals recently.

In the year to September 2020, mergers and acquisitions involving smaller companies accounted for 56% of the total up from 46% in the previous 12 months.

There was also a strong rise in takeovers made by private equity groups, according to research by accountancy firm UHY Hacker Young.

“Private equity firms have excess cash to invest and are on the hunt for value wherever they can find it. Clearly they are seeing a lot of value in AIM companies that still remain off-limits to many institutional investors,” said Daniel Hutson, a partner at the chartered accountants.

“Overall, the AIM market yields 1.2%, which is low compared to the mature companies in the FTSE100 but shows that the time when AIM was a synonym for loss-making and cash guzzling is long gone,” he added.

“Private equity companies have been willing to put their analyst teams to work to identify those AIM companies that they think traditional investors are undervaluing.”

Looking ahead, Brexit is expected to take some heat out of the market while the economy adjusts to the new changes, but UHY Hacker Young reckons small caps will remain attractive as more and more buyers look for high-growth targets, particularly within the tech and pharma sectors that have outperformed others during the coronavirus (COVID-19) pandemic.

One company off the takeover menu, for the time being anyway, is Mulberry Group PLC (LON:MUL), which dropped 14% to 202p after Mike Ashley’s Frasers Group PLC (LON:FRAS) said it will not make a takeover offer.

The offer period began last month when the FTSE 250 retailer increased its stake in the struggling luxury bag designer to over 30% but its attention has since turned to Arcadia and Debenhams.

Turning to the wider market, the AIM All-Share jumped 3.3% to 1,096 this week, outperforming the FTSE 100 which was up 0.6% to 6,589.

There was exit news for two AIM companies this week. Octagonal PLC (LON:OCT) plunged 54% to 1p after admitting it wants to delist to save money, and, while the holding company does not have any short-term plans to tap the market for funds, the directors no longer see the point of being listed.

Conversely, plans to leave AIM prompted a 23% jump to 6p for United Carpets Group PLC (LON:UCG), as its directors believe the firm is not getting enough attention from investors. Moreover, the free float is limited since a ‘founder concert party’ led by chief executive Paul Eyre and including commercial director Deborah Grayson and various family members currently holds over 64.7% of the shares.

Back to the fallers, oiler Hurricane Energy PLC (LON:HUR) tumbled 34% to 2p after announcing it will start talks with key stakeholders to unlock funding to increase production at the Lancaster field, offshore the UK.

Elsewhere, Remote Monitored Systems dived 29% to 1p after admitting the five-ply antiviral face-mask being produced by its Pharm 2 Farm subsidiary failed a stage of the breathability test and requires modification. However, the four-ply model passed it.

Meanwhile, Verditek PLC (LON:VDTK) lost 9% to 7p after announcing that a contract awarded by SAF International has been delayed but is hoped to restart in 2021, while the clean energy firm said COVID-19 has caused similar delays.

Fellow renewables firm SIMEC Atlantis slid 8% to 15p after entering a share placing agreement with US investor New Technology Capital Group, which is to buy up to £12mln shares.

Looking at the risers, Synairgen PLC (LON:SNG) soared 72% higher to 154p after it made changes to a Phase III trial of its SNG001 drug as a potential treatment for coronavirus sufferers, which means the study will be completed sooner than previously expected.

Elsewhere, estate agent Purplebricks Group PLC (LON:PURP) shot up 34% to 92p after revealing that a rush of new customers has pushed up half-year profits ahead of market expectations.

Information systems group Journeo PLC (LON:JNEO) added 10% to 48p after revealing trading in the second half of the year had been ahead of the previous six months.

Finally, Keyword Studios PLC (LON:KWS) jumped 9% to 2,738p after acquiring the festive-sounding audio studio Jinglebell, located in Milan, just a week before Christmas.

Next week there are no flotations on the schedule, though commercial lending group Vector Capital has earmarked its debut on the junior market for late December.

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