Earlier this year, in remarks that merited far more coverage than they received, Andy Haldane, formerly the Bank of England’s Chief Economist, warned against a raft of takeovers by “foreign raiders”¹. Britain should welcome overseas investment, he said, but not at the expense of long-term growth.

Haldane was speaking amid a frenzy of merger-and-acquisition (M&A) activity involving UK companies. EasyJet, one of the original success stories of London’s groundbreaking Alternative Investment Market (AIM), had recently emerged as the latest target for private equity investors.

The budget airline’s sale to Apollo Global Management, a US firm, has since been agreed. The price: £5.7 billion. Apollo says it does not plan to reduce staff numbers for at least 12 months after the deal’s completion – expected next year – but concedes some cuts are likely in due course².

Together, Haldane’s comments and EasyJet’s purchase tell us rather a lot about the state of UK equity markets. I believe it is well worth trying to understand why the overall message might ultimately be seen as a promising one.

On the one hand, it is true that the level of M&A activity has become alarming. I have never known it to be so high. It is also true that in the final reckoning, from a UK perspective, it is likely to translate into lost jobs, lost tax revenues and significant asset-stripping.

On the other hand, we need to ask why UK markets are attracting so much predatory behaviour. By and large, in my opinion, the straightforward answer is that they frequently represent extraordinary value.

The “foreign raiders” to which Haldane referred fully recognise as much. They see high-quality businesses with strong prospects on very attractive valuations. By stark contrast, many domestic investors perceive – or have been conditioned to perceive – a startlingly different picture.

Misunderstood and mispriced

UK companies, and small-cap and mid-cap stocks in particular, have been out of favour with investors for the past decade or so. On balance, sentiment might be politely described as persistently negative.

This extended spell in the doldrums has coincided with a period of marked US exceptionalism. Led by a handful of technology giants, the world’s biggest economy has clearly underpinned global equity performance for a number of years.

Yet the landscape has shifted of late. Many investors have raised questions about the eye-watering valuations of some of the US mega-caps. Against a challenging geopolitical and geoeconomic backdrop, the importance of sensible diversification is very much back in focus.

So where might investors look in seeking to broaden their horizons? If many US tech titans are priced for perfection, there ought to be something to be said for UK companies saddled with conspicuously low valuations.

This brings us, of course, to a key question: why are these businesses so cheap? In particular, why are so many smaller companies mired in sub-bargain-basement territory relative to their historical averages?

There are two possibilities. The first is that current valuations accurately reflect the travails of an investment arena that is genuinely devoid of appeal. The second is that negative sentiment has become so normalised that these companies are now routinely – and often drastically – mispriced.

I prefer the latter explanation. Crucially, it appears an ever-expanding cast of “foreign raiders” agrees with me.

Reasons to go against the herd

Among those who reside in the former camp – that is, those who think UK small-caps and mid-caps hold no attraction whatsoever – there is something of a herd mentality at play. In my view, two factors have been especially influential in this regard.

First, many UK pension funds have virtually abandoned domestic equities over the past quarter-century. Allocations stood at more than 50% around 25 years ago but are now at less than 4%.

Shamefully, this is one of the lowest allocations among developed pension systems globally³. As such, it constitutes rather less than a resounding vote of confidence in British businesses.

Second, the transformative potential of UK smaller companies seems to generate little interest – less still excitement – in the corridors of power. Successive governments have done practically nothing to help this sphere or to highlight its role as a powerful engine of growth.

Maybe Haldane will at last trigger some long-awaited progress in this respect. After all, he is nowadays said to be an adviser to our latest Prime Minister.

In the meantime, investors might wish to keep in mind that small-caps and mid-caps have tended to outperform large-caps over the long run. By way of illustration, the Deutsche Numis 2025 Annual Review details how UK smaller companies outshone not only the FTSE 100 but US equities and Treasuries over a 70-year stretch beginning in 1955.

In addition – and perhaps above all – it might be useful to remember that negative sentiment is a classic prerequisite for a bull market. Where “foreign raiders” lead today, investors who are willing to see past an umpteenth round of doom-laden headlines may happily follow in the near future.

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Eustace Santa Barbara is co-manager of the IFSL Marlborough Special Situations, UK Micro-Cap Growth, Nano-Cap Growth and Multi-Cap Growth Funds.

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¹ See, for example, This Is Money: “Foreign raiders must be stopped, warns key Burnham adviser Andy Haldane”, June 25 2026 – https://www.thisismoney.co.uk/money/markets/article-15930115/Foreign-raiders-stopped-warns-key-Burnham-advisor-Andy-Haldane.html.

² See, for example, Personnel Today: “EasyJet takeover: Apollo pledges no job cuts for first year”, August 7 2026 – https://www.personneltoday.com/hr/easyjet-takeover-apollo-pledges-no-job-cuts-for-first-year/.

³ See, for example, New Financial: “Comparing the asset allocation of global pension systems”, September 2024 – https://www.newfinancial.org/reports/comparing-the-asset-allocation-of-global-pension-systems.

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This article is provided for general information purposes only and should not be construed as personal financial advice to invest in any fund or product. These are the investment manager’s views at the time of writing and should not be construed as investment advice. The opinions expressed are correct at time of writing and may be subject to change. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.

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