(Bloomberg) -- Bargain hunters on the prowl for British companies are finding that UK Plc is no pushover, with even the most beaten-down companies battling would-be buyers for better takeover price premiums.

Electronics retailer Currys Plc and Direct Line Insurance Group Plc recently turned down what looked like generous offers, with bids in both cases coming in well in excess of their share prices. M&A premiums for UK companies as a whole are running at 34% — near the highest level since 2018 — and yet, in some cases like Currys it still amounts to a fraction of the stock’s peak price.

The UK has become a hotbed for deals in the last few months, driven mainly by rock-bottom valuations. While British shares are cheaper than most overseas counterparts, companies also look attractive on a key M&A valuation measure, the multiple of enterprise value to earnings. On that basis, London trades at a 50% discount to global peers.

Hence, boards holding out for higher takeover offers makes a lot of sense. 

“These bids aren’t amazing, they aren’t extraordinary. They’re taking the valuation back to normal where it used to be over the last 30 years,” said Adrian Gosden, a portfolio manager at Jupiter Asset Management Ltd. 

The chunky takeover premiums show that M&A suitors too are aware of just how cheap British companies have become in the wake of the 2016 Brexit vote and years of investor flight. Currys shares are currently 88% below record highs hit in 2015, while Direct Line has halved from the peak reached same year.

So far in 2024, there have been 12 takeover offers for UK companies with a market capitalization of at least £100 million, compared to five approaches at this time last year, according to data compiled by Bloomberg. While takeover premiums are fast approaching the 37% level in 2018, warehouse firm Wincanton Plc’s purchase by GXO Logistics Inc involved premium of more than 100%.

It’s a pattern that’s likely to keep playing out as the deal-spree carries on. While DS Smith Plc, Virgin Money UK Plc and Spirent Communications Plc have received approaches recently, two M&A bankers in the City said at least 10 other companies are in deal talks that aren’t public yet.

“It’s no surprise that takeover premiums are higher than the historical average,” Graham Simpson, head of Quest Research at Canaccord Genuity. “This is not because acquirers are being particularly more generous, it is because the UK extreme undervaluation allows them to offer higher premiums to convince shareholders and still generate a large return on investment.”   

The question is how much money would-be suitors might be willing to cough up. Barclays analysts reckon Direct Line at least could well be right in describing the Ageas bid as “unattractive” and see the Belgian insurer potentially upping its offer by £400 million. 

Currys meanwhile said it was worth substantially more than Elliot’s 67 pence-per-share offer. Liberum analyst Adam Tomlinson agrees and has a price target of 135 pence for the stock. 

“Currys has been doing a great job,” Tomlinson said, pointing to improving UK and Nordic businesses. “The potential offer failed to reflect any of this upside.” 

Yet, walking away from a suitor on the basis of valuation alone can be risky as the example of THG Plc shows. Back in 2022, the online cosmetics and supplements retailer rebuffed a 170 pence-per-share bid from Belerion Capital Group Ltd and King Street Capital Management, citing an inadequate price. Today, its shares trade at 58 pence. 

--With assistance from Kit Rees and Dinesh Nair.

©2024 Bloomberg L.P.