Bull markets only end when the money runs out. The FTSE's £170bn payday is no bear case
There is an old saying that bull markets only end when the money runs out. Right now, however, the UK stock market is showering investors in cash, which may help to explain why still seemingly unloved indices could yet continue to confound the doubters.
Much commentary focusses on how companies are leaving London for pastures new or choosing to list elsewhere if they are stock market newcomers. However, such gloom is yet to hold back the benchmarks and, in the year to date, the UK stock market is outperforming America – especially once the dollar's decline against the pound is taken into account.
The FTSE 100 stands above 9,000 for the first time, the FTSE 350 above 5,000 and the FTSE All-Share is making a bold bid to cross 5,000 for the first time as well, all helped by healthy dividends, share buybacks and also takeover activity.
Those deals are interesting for two reasons.
First, they suggest that someone, somewhere still thinks that UK stocks are cheap, given the average takeover premium of 38pc offered so far in 2025 on 45 bids that have either closed or are still live. The two most recent swoops for UK firms, for Empresaria and portfolio holding Just Group by Legacy and BWS, respectively, both came at levels way above the prevailing share price.
Second, merger and acquisition activity puts cash back in investors' pockets and they can redeploy that liquidity by buying something else. Not every offer from a predator is cash only – the approaches for Assura, Bakkavor, Urban Logistics Real Estate Investment Trust, Marlowe and Dowlais all have some element of payment in stock to them – but pretty much all come with cash on the table to some degree, and that cash may well look for a new home once the deals conclude.
The approach for Just Group, which values the life insurer at £2.4bn, is the tenth in 2025 to date that comes with a price tag in excess of £1bn. The biggest proposed takeover of the year so far on the UK market is that of precision instruments maker Spectris. Rival private equity groups Advent and KKR are locked in a battle for the precision instrument maker and KKR's latest cash-plus dividend offer values the target at more than £4.1bn. The premium to the undisturbed share price is also an eye-catching 105pc.
The Empresaria, Just Group and Spectris deals take the total in concluded or live bids for UK-listed firms to just shy of £25bn so far this year. That sum follows on from the tallies of £49bn and £17bn for 2024 and 2023, respectively.
That running total of nearly £25bn for 2025 equates to 1pc of the FTSE All-Share's £2.5tn market capitalisation. Add the consensus analysts' forecast of £91.3bn in dividend payments from the index's members and the £54bn in share buybacks already declared by them this year and the total cash return to investors is estimated to be £170bn.
That is 6.6pc of the FTSE All-Share's market cap. Such a total cash yield may look tempting to many investors, as it handily beats the prevailing rate of inflation, the Bank of England base rate and the benchmark UK ten-year Gilt yield.
The cash inflow is therefore the total opposite of the cash drain that tends to call the top in markets, when investors are seduced by a rash of initial public offerings and new floats, and then besieged by second offerings of that same paper.
It is also – hopefully – an affirmation of the value-oriented approach taken by this column. A strong narrative and investment case can carry a share price a long way, but the valuation paid is the ultimate arbiter of investment return. Even a good company can be a bad investment if you overpay for a share of its profits, cash flows and assets.
Current portfolio holdings that are on the receiving end of a bid are the aforementioned Just Group, Assura and Dowlais. We shall have to see how those situations develop, but the Just bid comes at a near 200pc premium to our entry price, while Assura offers a 45pc uplift. Even if a drop in the share price of Dowlais' would-be acquirer American Axle is currently capping our upside, given the stock element of the offer, things are looking positive.
Other picks that drew a predator have included Shanta Gold, AVEVA, Clinigen, Contour Global, Gamesys and Sky.
We even missed a few more, notably Morrison and Manx Telecom simply through impetuosity, to provide a reminder of the value of patience.
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