Fresh research from analysts at asset manager Aberdeen reveals that the UK small companies valuation discount has narrowed amid an onslaught of takeover interest from overseas entities keen to capitalise on the low valuations of exciting UK companies.
Aberdeen’s research from February 2025 had identified UK small caps as the most undervalued stocks globally when comparing current 12-month forward price-to-earnings ratios against their 10-year averages. UK small caps were trading at a steep 23.4% discount to their historical average, compared to just a 3.2% discount for global smaller companies overall.
However, recent months have seen this valuation gap narrow considerably for UK small caps, with the discount shrinking to 14.6%.
Meanwhile, the MSCI ACWI Small Cap index—representing global smaller companies—has seen its discount widen to 30.3%. According to the latest data through April 30, 2025, smaller companies in Asia (excluding Japan) now face the largest regional discount at 42.9% below their historical average.
One of the driving forces behind the narrowing of the UK smaller company valuation discount is the £15 billion worth of bids for smaller companies recorded so far in 2025, mostly from overseas corporate entities.
Small and mid-caps have received the lion’s share of the bid interest. Of the 15 transactions announced in 2025 year-to-date, six were for FTSE 250 companies, four for FTSE Smallcap firms and four for AIM companies.
“The UK continues to be a happy hunting ground for both corporate and private equity bidders, due to low valuations and willing sellers,” said Amanda Yeaman, co-manager of the abrdn UK Smaller Companies Fund and the abrdn UK Smaller Companies Growth Trust plc.
“It is notable that corporates have been the main acquirors, which shows the attractiveness of UK companies and suggests confidence in the economic outlook and the interest rate environment. Currently there are willing buyers (attracted by the valuations available and the probability of a successful conclusion) and willing sellers. The scale of M&A and lack of IPOs is resulting in reduction in the number of UK-listed growth companies, illustrating the tension between the clear value in the market, but the shrinking asset pool.”