French investors first in the queue at the UK’s rummage sale

Brexit was supposed to awaken a latent buccaneering spirit, unshackling entrepreneurs and companies to roam the globe pillaging other countries’ assets. And so it has. For the French.

This week billionaire Xavier Niel grabbed a £750mn slice of Vodafone; the UK’s biggest telecom group. France’s Schneider Electric announced it would swallow one of the UK’s oldest tech companies, Aveva; and French utility Suez paid £2bn for a UK recycling company.

The flurry of cross-Channel deals on a single day followed telecoms entrepreneur Patrick Drahi buying 18 per cent of BT last year, while French satellite group Eutelsat is preparing to acquire the UK’s OneWeb.

Is this a dastardly plot orchestrated by former Rothschild banker Emmanuel Macron, the French president branded a frenemy of the British state? Bankers point instead to the relative decline in valuations and currency since the 2016 Brexit vote.

The current burst of French inbound M&A to the UK is unusually large. Data from Refinitiv suggests the highest volume in at least a decade and the highest value since 2013.

But there have been decades of such deals. Vodafone’s sale of mobile operator Orange to France Telecom in 2000 tops the league table, according to Bloomberg data, at £31bn. Ad group Publicis paid more than £1bn for smaller rival Saatchi & Saatchi that same year. Both were top-of-the-market deals compared with today’s rummage sale.

Activity in the other direction is far less common. UK-based private equity firms such as CVC, Permira and Bridgepoint have done some deals. BT paid £12.5bn in 2014 for mobile operator EE, a joint venture between France Telecom and Deutsche Telekom. But this is a trickle versus the French wave.

France is always quick to worry about foreign takeovers, most notoriously branding yoghurt maker Danone a strategic asset to thwart a bid from Pepsi in 2005. In 1997 the president of the French National Assembly got it backwards, complaining that “although it is very difficult for French companies to buy large foreign companies, the reverse is not true”. At that moment, French cement group Lafarge was pulling off a hostile takeover of British building materials company Redlands.

In the UK, there is usually little angst as even iconic British brands are flogged to France. Luxury group LVMH, run by Niel’s father-in-law Bernard Arnault, is a repeat customer, with deals ranging from shirtmaker Thomas Pink in 1999 to distiller Glenmorangie in 2004. The Beatles’ record label EMI went to Vivendi in 2011. Gatwick airport went to Vinci in 2018.

But is the UK any more rational? In 2016 then prime minister Theresa May celebrated the takeover of the UK’s only internationally significant tech company, Arm, by Japan’s SoftBank. Successive Conservative governments have since embarked on a badly received begging campaign to persuade SoftBank to relist the chip designer in London.

If Arm does end up being floated, SoftBank naturally prefers New York, which offers a deeper market and higher earnings multiples. The US is the real source of the threat to the UK — not just as a listing destination but as the home of potential acquirers. With the ammunition of a strong dollar, expect American companies to join the French at the UK’s bargain bin.

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