Urgent action is required to stem the continued shrinkage of London’s stock market, with the pace of opportunistic takeover bids set to accelerate further, analysts warn.

London-listed companies saw almost £9billion worth of takeover bids in the first quarter of 2025, following £52billion worth of deal activity over the course of last year, analysis from Peel Hunt shows.

Zero new firms opted to list on the London Stock Exchange during the quarter after just three IPOs in 2024.

The UK has been hit by waves of takeover activity in recent years, with bidders attracted by weak valuations in part driven by an exodus of investor capital from UK equity funds.

UK equity funds have suffered investor outflows during 44 of the last 45 months, according to the broker, with the sole month of inflows reflecting Autumn Budget tax changes that proved less onerous than feared.

Takeovers have been particularly focused on smaller British growth companies, while far fewer new firms are emerging to take their place on public exchanges and many existing businesses are opting to delist.

There are 15 bids for London-listed companies worth more than £100million each currently live.

It has seen the number of companies listed on London’s AIM market plummet 36 per cent since 2018, while the index’s market cap has fallen 60 per cent since its 2021 peak.

Peel Hunt’s head of research Charles Hall said: ‘The rate of departure has accelerated in the current year, with 44 companies already considering leaving.

‘Of these, 16 are due to M&A, eight are moving to the main market, and 20 are delisting.’

The UK has been hit by waves of takeover activity in recent years, with bidders attracted by weak valuations

The analyst expects the pace of merger and acquisition activity to continue ‘at heightened levels’, with 15 bids worth more than £100million each currently live.

He anticipates private equity bids, which represented just 30 per cent of transactions in the first quarter, to increase as ‘financing conditions improve’.

Hall added: ‘Currently there are willing buyers (attracted by the valuations available and the probability of a successful conclusion) and willing sellers (due to fund outflows and the scale of premia).’

The broker warned the government takes action to ‘urgently address the importance of UK capital to support UK companies’.

Peel Hunt said: ‘It seems obvious that there are structural issues in the UK that need to be addressed to retain a healthy UK equity market, particularly for Small & Midcap companies.

‘The UK needs to address the demand side if it is to retain its growth companies and to ensure that the equity market is able to provide long-term growth capital.

‘This can be delivered through pension reform, ISA reform, establishing a national wealth fund, and addressing stamp duty.’

Real estate investment trusts become prime targets

Of the London-listed companies targeted with takeover bids, six have been funds and real estate investment companies, which have seen increased buyer interest from persistently large discounts to net asset value.

Peel Hunt also pointed to ‘a focus on increasing scale in order to increase relevance to a broader range of investors’.

Head of real estate securities at Gravis Matthew Norris said that while many private equity bids in the sector ‘claim to be a generous premium to recent share prices’, but such offers may distract from the real value of these assets.

He added: ‘The same story is being repeated time and again.

‘A bidder offers a significant premium to recent prices, and dealmakers present it as an undeniable win.

‘We’ve seen this with Assura, where KKR’s private bids were focused primarily on historical share prices, rather than the true intrinsic value of the company.

‘Similarly, with Warehouse REIT, the bids from a consortium of private equity firms were marketed as a premium to past prices with little mention of valuation metrics and no mention of future value creation.’

‘It overlooks the long-term earnings power of the companies, and the future potential of the assets involved.’

All the takeover bids for London-listed companies in the first quarter 

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