Hedge Funds Stung by UK Takeover Surge as M&A Activity Soars

A recent surge in takeover bids targeting UK companies has taken hedge funds, including Millennium Management, GLG, and Gladstone Capital Management, by surprise, according to a report by the Financial Times. These hedge funds were caught off guard by acquisition offers for companies such as financial services firm Hargreaves Lansdown, cybersecurity provider Darktrace, and video game services company Keywords Studios. As a result, the stock prices of these companies have seen significant increases.

While hedge fund managers acknowledge that these companies face challenges, the companies' relatively low share prices have attracted foreign rivals and private equity investors, making shorting UK stocks a much riskier strategy. One hedge fund executive, specialising in short selling, was quoted saying: "Shorting any UK mid-cap is insane, literally insane."

According to the London Stock Exchange Group, mergers and acquisitions (M&A) involving UK companies have risen by 84% in 2024 compared to the same period last year. The surge is primarily attributed to a significant valuation gap between UK stocks and those in other markets, especially the US, making UK companies more appealing to buyers. This trend is encouraging hedge funds and investors to reconsider their strategies regarding UK stocks.