21/06/2024
Uk m&a market shifts
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“Adapting to Market Shifts in UK M&A”

How can UK businesses steer through the changing M&A environment during tough economic times?

The UK has seen a drop in M&A deals since 2021, following a worldwide pattern. In 2023, deals fell by 18% from the last year and 33% from 2021. However, the healthcare sector saw more deals, unlike others. The total value of these deals also dropped to £83 billion in 2023 from £149 billion in 2022.

Lucy Stapleton from PewC UK mentions the tough economy but also sees signs of recovery. This is due to stable interest rates and lower inflation. This mood boost is helping businesses feel more confident and investors more positive. The PwC 27th UK CEO Survey finds 21% of leaders worried about future survival without big changes.

Deals are now key for rapid change. ASDA’s buyout of EG Group UK is such a strategic move. Tim Allen from PwC UK talks about tech progress and energy shifts keeping deals alive, especially in TMT and energy fields.

Private equity firms played a major role in 2023, making up 42% of deals and 55% of their value. Despite economic and political challenges, they’re investing with caution in chosen sectors.

With signs of economic recovery, confidence is growing among sellers and buyers. Knowing and adapting to these M&A market shifts is crucial for success ahead.

Understanding the Decline in Deal Activity

Recent studies show a big drop in UK deal-making. In 2023, deal volume was 18% less than in 2022. It was nearly a third less than in 2021. This points to a big fall in merger and acquisition (M&A) actions. The total deal value also went down. It dropped from £269 billion in 2021 to £83 billion in 2023.

The slump in big deals is a key reason for this downturn. Big, game-changing deals have become rarer. This is because private equity firms are investing less due to economic uncertainty. High inflation, rising interest rates, and geopolitical tensions are making things tough. These factors are slowing down significant deal activities.

Yet, some sectors like health are still doing well. For instance, health is the only sector with more deals in 2023 than the year before. Private equity was involved in 42% of the deals by volume and 55% by value. This shows some optimism in certain areas.

How private equity firms fund their buys has changed too. They are now using non-traditional lenders and equity partners more. There’s also a greater interest in sectors like tech, media, telecommunications, energy, and healthcare. These sectors are seen as key for strategic changes and creating value.

We could see a rebound in M&A activities soon. This depends on the economy stabilising and inflation rates going down. If sellers are more willing to sell and investors feel more confident, we might see an upturn. The hope is this will breathe new life into the UK’s M&A market.

The Impact of Economic Stability on M&A

2023 started with hope for UK M&A. Economic stability has shaped the market, making M&A prospects better. The stabilising monetary policy boosted investor confidence. This led to a stronger market for deals.

Strong GDP growth and positive consumer feelings have boosted M&A activity. This, in turn, has made the economy even more stable.

Furthermore, low interest rates have made loans cheaper. This encourages firms to buy others. Increased confidence among investors has made these deals more appealing. Thanks to the government, economic stability has helped in valuing deals and planning M&A.

Still, concerns like tax changes and regulations sway the UK’s M&A scene. Yet, sectors keen on big trends like energy shifts and tech progress are eager for M&A. PwC notes the economy is becoming friendlier for M&A. So, companies are getting ready for future deals with more confidence.

Strategic Responses to Market Shifts

In the ever-changing UK M&A scene, companies see the urgent need to adapt quickly. The tech sector, with a 35% stake in 2022’s M&A activity, shows the power of strategic mergers. These actions are key for innovation and attracted a whopping £12.7 billion in investments.

Corporate transformation

Leaders in different fields are now looking at M&A for rapid and broad changes. ASDA’s buy-out of EG Group UK is a perfect example. It shows how deals can quickly evolve operations and grow the customer base. For top execs, these deals are vital for the fast adaptation to market shifts, securing the future of their businesses.

About 75% of deals in the UK face hurdles, yet the market stays dynamic. Private equity plays a big role, making up 42% of deals in 2023. Companies like Metro Bank, which won 93% of shareholder votes, show how M&A can support recovery and expansion. With £12.7 billion invested in early 2023, the stage is set for big changes.

After a dip in deals in 2023, the market looks to bounce back in 2024. Staying focused on strategic M&A is seen as key to navigating these uncertain times. It’s this strategic thinking that will help companies grow in challenging economic climates. By adapting smartly, businesses aim not just to survive, but to flourish.

Sector-Specific Transformations

Sector-specific changes are key in reshaping the UK’s M&A scene. They show varied activity across different industries. The technology, media, and telecom (TMT) sectors keep strong deal volumes. This is due to the need for cloud services and Generative AI advancements. Companies invest in these to stay ahead in a digital market.

In the energy sector, deals have grown as firms turn to sustainable resources. This move matches wider efforts to meet environmental requirements and cut carbon emissions.

The healthcare industry is also transforming, keeping deals high. The push for better technology and patient care has led to many acquisitions and partnerships.

These industry-specific M&A trends show a strategic way to tackle market changes. Companies make transformative deals to stay competitive and plan for growth. Adapting to specific industry challenges and chances drives M&A activity in the UK.

The Role of Private Equity in UK M&A

In 2023, private equity played a huge role in the UK’s mergers and acquisitions (M&A), making up 42% of all deals and 55% in value. Even though the total deal value dropped to £83 billion from £269 billion in 2021, private equity focused on fast-growing areas. These areas include technology, media, telecom (TMT), pharmaceuticals, and healthcare.

Due to current market situations and geopolitical issues, private equity is being careful with deals. However, they are still confident in their choices. Funding for deals is tougher and costlier, with private credit helping out a lot. Yet, private equity’s confidence is strong, especially in picking investments that could bring big returns.

Private equity stood out in several deals, especially in the wealth management field. It was involved in half of the deals there, showing this sector’s attractiveness despite economic challenges. In 2023, there were 92 deals in the investment sector, and 82% were in wealth management.

Because of higher interest rates and slow growth, buyers are being more cautious, affecting the prices they’re willing to pay. But, private equity’s strategic focus keeps them powerful in the UK’s M&A scene.

Preparing for a Changing M&A Landscape

Companies need to prepare well for the constantly changing M&A market. A big drop in UK deal volume in 2023 shows the importance of having a solid strategy. With deal values down significantly from £269bn in 2021 to £83bn in 2023, firms should boost their revenues and improve their operations.

In 2023, PE transactions made up 42% of all deals and 55% of the total value, showing their importance. An expected rise in M&A activities makes being resilient crucial for businesses. Since 21% of CEOs think their companies won’t last ten years without changes, it’s vital to be creative in financing and making bold bets.

The harder and more expensive financing environment demands careful M&A plans. The pressure is on for growth and staying competitive in fields like tech and healthcare. Companies need a well-thought-out plan for adding value. This will help them grab new chances and do well in their deals.

UK M&A Market Shifts

UK firms now see M&A transactions as key to adapting fast to market shifts. Over half of UK senior executives now view these as vital for swift, strategic changes. They believe M&A activity in 2024 will boom, using acquisitions and divestments to gain agility and a tech edge.

UK deal activity saw a 17% dip in 2023, with 3,628 deals. The latter half of 2023 had almost 600 fewer deals than its first half. Also, the total value of deals fell to £88bn, a 41% decrease from 2022, with the TMT sector leading in activity.

Private equity was crucial, making up 42% of transactions by volume and 55% by value in 2023. TMT, energy, pharmaceuticals, and healthcare were top sectors for PE investments. With private credit gaining prominence, the financing landscape is set to become more challenging and costly. However, the narrowing gap between buyer and seller expectations spells opportunity for those ready to act.

One in five CEOs think their company won’t make it for another 10 years without change. Thus, 56% of senior executives see M&A as the way forward to match market trends. The fall in British M&A activity highlights the need to tackle these shifts quickly.

Future-Proofing Through Technology Integration

In the UK, adding cutting-edge tech like GenAI into business operations is now key for staying ahead. A PwC report shows that 70% of UK bosses see tech-driven M&A as a main way to meet tech goals. This points to a shift towards more deals, aiming to bring in talented staff and new tech chances.

For these deals to work well, being clear and direct about goals is vital. This helps prevent extra costs and effort from losing the project’s direction. In areas like Telecoms, Media and Tech, bringing in new tech can overburden teams, especially if roles are unfilled. This underscores the necessity for effective leadership and transforming how teams work.

Strong leadership is crucial when merging with or buying companies. Leaders should set definite targets and give teams the room to reach them. Eyeing future-ready skills via M&A is planned as a prime approach within a few years. This will keep businesses at the forefront of innovation.

Using GenAI tech opens many doors for companies. Yet, making these technologies work well demands a focus on clear communication and managing people. Keeping staff involved and supported is essential for a lasting and revolutionary business advantage. Thus, tech M&A isn’t just about getting new gadgets. It’s also about building a workforce that can face upcoming tests.

The Influence of Geopolitical Factors

Political changes greatly affect the UK’s mergers and acquisitions (M&A) scene. The conflict in Ukraine and Russia along with US-China trade issues cause supply chain problems. These difficulties urge companies to revise their plans for successful M&A navigation.

Geopolitical uncertainty

Even with a 18% reduction in UK M&A deals in 2022 and a larger drop since 2021, companies stay strong. They adjust their M&A approaches to handle geopolitical problems. This ensures they remain resilient and keep going. In contrast, the healthcare sector saw more activity in 2023 compared to 2022, showing it’s tough in tough times.

There was a big fall in the UK’s total M&A value in 2023, dropping to £83bn from £269bn in 2021. This proves how much geopolitical issues can affect market prices. To fight these issues, 42% of 2023’s deals involved private equity. Investments focused on growing sectors like tech and energy. They aim to overcome supply and geopolitical challenges.

Companies now look to M&A for major transformations. Over half of senior execs view these transactions as key for progress. With 21% of CEOs worried about their firm’s future without change, the push to adapt is strong. Crafting smart M&A strategies is essential to get through geopolitical uncertainty.

The Rise of Take-Private Transactions

In 2023, take-private deals became a big part of the UK’s business deals, making up 53% of them. Investors were keen on these opportunities because UK public companies were cheaper than those in the US. The UK’s rules for these deals made them attractive for big changes and investments.

Latham & Watkins, a big advisory firm, helped with important deals. For example, they guided the $5.7 billion purchase of Abcam by Danaher Corporation. These deals stand out as smart choices during tough economic times. Despite difficulties, they let private investors meet their goals by using the market’s conditions.

The number of UK deals in 2023 was slightly lower than in 2022. It went from 2,739 to 2,634. This shows a continued interest in valuable assets. Since these offers follow strict rules, take-private deals keep playing a key role. They help refresh public companies and bring significant investment from the private sector.

Written by
Scott Dylan
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Scott Dylan

Scott Dylan

Scott Dylan

Scott Dylan is the Co-founder of Inc & Co, a seasoned entrepreneur, investor, and business strategist renowned for his adeptness in turning around struggling companies and driving sustainable growth.

As the Co-Founder of Inc & Co, Scott has been instrumental in the acquisition and revitalization of various businesses across multiple industries, from digital marketing to logistics and retail. With a robust background that includes a mix of creative pursuits and legal studies, Scott brings a unique blend of creativity and strategic rigor to his ventures. Beyond his professional endeavors, he is deeply committed to philanthropy, with a special focus on mental health initiatives and community welfare.

Scott's insights and experiences inform his writings, which aim to inspire and guide other entrepreneurs and business leaders. His blog serves as a platform for sharing his expert strategies, lessons learned, and the latest trends affecting the business world.

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