A warning from City investment bank Peel Hunt states that a significant one-third of smaller British firms are at risk of being acquired from the stock market next year following a decline in UK share prices.
Peel Hunt highlighted that small and mid-cap companies on the Alternative Investment Market (AIM) with valuations up to £250 million are particularly susceptible to takeovers in 2025, placing roughly one in three at potential risk.
This vulnerability arises amid a recent drop in stock valuations, driven by expectations that both the US Federal Reserve and the Bank of England will implement fewer interest rate cuts in the coming year. Peel Hunt noted that 32% of AIM-listed companies with market caps between £50 million and £250 million have experienced a decline of over 30% in their share prices over the past twelve months, making them attractive targets for buyers.
The forecast heightens concerns about a possible mass exit of companies from London’s public markets, which have already been strained by a surge in takeover activities and a lack of new listings. In 2024, approximately 5% of all UK-listed companies, equating to one in twenty, received public takeover offers—the highest rate Peel Hunt has observed in recent years.
“We are witnessing an influx of demand from both strategic and private equity buyers, which is overwhelming our defenses,” Peel Hunt stated. “Unless circumstances change, 2025 is likely to see a significant and ongoing wave of UK takeovers.”
Peel Hunt attributes the anticipated takeover surge to factors such as limited liquidity, reduced valuations, and challenges in accessing capital markets.
AIM operates as a less regulated segment of the London Stock Exchange, offering more lenient listing requirements for companies. However, its sustainability is under scrutiny due to recent regulatory changes on the main market, which have diminished some of AIM’s key advantages. Earlier this year, the Tony Blair Institute advocated for the dissolution of AIM, proposing its merger with the main market after asserting that AIM had failed to effectively scale up businesses.
Additionally, Rachel Reeves’s Autumn Budget introduced a 20% inheritance tax on AIM-listed stocks, lowering the previous relief from 100% to 50%. Although this change was less detrimental than anticipated and led to an increase in the AIM index, it adds to the challenges facing the market.
Notably, Peel Hunt itself is listed on AIM, underscoring the interconnected nature of the market’s stakeholders.
