EQT's £9bn swoop on Intertek caps a record run of bids for British firms

The wave of bids for British companies has claimed another high-profile target. Swedish private equity group EQT has made an indicative cash offer of £60 a share for Intertek, the FTSE 100 testing, inspection and certification group, valuing the company at around £9.2 billion in what would be one of the largest take-private deals of the year.

Banks are lining up to provide the financing, with debt packages of around £5 billion being assembled to support the leveraged buyout. The funding is expected to blend leveraged loans and high-yield bonds, potentially issued in both euros and US dollars, with Morgan Stanley, advising EQT, expected to lead the package. EQT has been granted an extension to mid-June to decide whether to firm up its interest into a formal bid.

The approach is emblematic of a year in which overseas buyers and private equity firms have repeatedly trained their sights on the London market, betting that many British companies are undervalued relative to international peers.

Why Intertek, and why now

Intertek is a quietly essential business. It tests, inspects and certifies products and processes across industries ranging from consumer goods to energy, generating steady, recurring revenues from the kind of compliance work that companies cannot easily do without. For a private equity buyer, that combination of dependable cash flow and global reach is highly attractive, particularly when financed with debt.

The appeal is sharpened by valuation. Like many UK-listed companies, Intertek has traded at a discount to comparable businesses listed in the United States, a persistent feature of the London market that buyers with deep pockets have been keen to exploit. A weaker pound at various points has only added to the attraction for dollar- and euro-based acquirers.

At £60 a share, EQT's indicative offer puts a substantial premium on the table, the kind of number designed to bring a board to the negotiating table even if it has not solicited a deal. Whether it converts into a firm offer, and whether it proves enough, will become clearer as the deadline approaches.

Part of a much bigger trend

The Intertek approach does not stand alone. Takeovers have dominated UK financial headlines all year, with more than £22 billion of firm offers launched in the first half and the market averaging around seven firm offers a month. June alone has seen a double-digit tally of firm bids, underscoring just how active dealmakers have become.

• EQT's indicative offer for Intertek: £60 a share, valuing the group at about £9.2 billion
• Financing: around £5 billion in debt, blending leveraged loans and high-yield bonds
• First-half UK firm offers: more than £22 billion launched
• Run rate: roughly seven firm offers a month, with a double-digit count in June
• Drivers: undervalued mid-cap and large-cap shares, foreign interest, a pragmatic regulatory backdrop

The drivers are consistent across deals: British shares that look cheap by international standards, abundant capital held by private equity firms that need to be deployed, and a regulatory environment seen as broadly receptive to transactions. Foreign trade buyers and financial sponsors alike have concluded that the London market is a happy hunting ground.

“There is a persistent valuation gap between London and other markets, and well-funded buyers have decided to close it themselves rather than wait for sentiment to turn. Almost every week brings another approach.”

— M&A adviser, describing the year's dealmaking climate

The debate over the City's pulling power

The takeover boom has reignited a long-running debate about the health of the London Stock Exchange. Supporters of an active deals market point to the premiums shareholders receive and the efficient reallocation of capital. Critics warn that a steady drain of listed companies into private hands or foreign ownership hollows out the public market, reduces choice for investors and shifts decision-making, and sometimes jobs and tax, away from the UK.

Each large take-private, in this view, is a symptom as much as a success: a sign that companies are worth more to private buyers than the public market is willing to pay, which is hardly a ringing endorsement of London's valuation of its own businesses.

Background

Private equity firms raise large pools of capital from pension funds and other investors, then buy companies, often using significant debt, with the aim of improving them and selling at a profit within a few years. EQT is one of Europe's largest such firms. Take-private deals, in which a listed company is bought and removed from the stock exchange, have surged as sponsors target UK businesses they regard as cheap. The UK Takeover Code governs the process, including the strict deadlines under which a potential bidder must either declare a firm intention to bid or walk away.

What happens next

Attention now turns to whether EQT firms up its indicative interest into a formal offer before its deadline, and how Intertek's board responds. A firm bid would trigger a detailed timetable of disclosures and shareholder votes; a decision not to proceed would leave the company independent but in the spotlight. Either way, the episode reinforces the dominant corporate theme of the year: British companies remain firmly in play. This article is general information and not financial advice.