18/07/2024
Uk m&a market analysis
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“Analyzing the UK M&A Market: A 2024 Perspective”

Are the tides turning for the UK’s merger and acquisition landscape, as we step into 2024 with cautious optimism?

As we look into the UK M&A market for 2024, analysts see a big change. The activity has decreased a lot since 2021’s high point. Now, the number of deals has dropped by 18% compared to last year and by almost a third since 2021.

The total value of deals has also fallen sharply, from £269bn in 2021 to £83bn in 2023. This drop impacts various sectors across the board.

Yet, hope is in the air for 2024. Factors like stable interest rates and lower inflation may improve conditions for making deals. Lucy Stapleton from PwC UK hints at a possible upswing in activity soon. The technology and healthcare sectors might lead the way, driven by the push for innovation and energy shifts.

Private equity is still a major force in the UK M&A market, covering 42% of transactions by volume. They also represent 55% in value for 2023. According to PwC’s 27th UK CEO Survey, 20% of CEOs think their company won’t last 10 years without big changes. This belief drives them to view deals as crucial for keeping up with the market.

Tim Allen from PwC highlights that tech innovation and energy transitions are pushing M&A activities. He suggests these factors could revitalise the UK’s M&A scene in 2024, especially in energy, pharmaceuticals, and healthcare sectors.

Introduction to the UK M&A Market in 2024

The Overview of UK M&A landscape in 2024 shows a wave of cautious optimism. UK mergers have hit over £1bn in firm offers in Q1 alone. This beats the entire total for 2023. Such an uptick shows that investors and companies feel confident. The acquisitions forecast looks good as market conditions get better. With inflation and interest calming down, we could see more big M&A moves.

Strategic deals are key for companies to stay ahead. Sectors like real estate and finance need transformative deals. For instance, ASDA’s acquisition of EG Group UK shows the push for new markets.

There’s a rise in high-premium deals too, like Wincanton plc’s 104% premium. It shows the growing interest in undervalued UK stocks. Especially those at big discounts to US counterparts.

Addressing the negative views on financial troubles is crucial. Saietta’s case, dealing with administrators right after starting a sale process, highlights this. It shows the importance of careful planning and risk checks in deals.

The Ashurst UK Public M&A team is advising on many key deals. With the IPO markets quiet, companies are turning to M&A as an exit strategy. This move is helping to increase M&A activity.

Despite a global drop in deal values, the UK market remains buoyant. It’s seen as an opportunity for smart, strategic deals. These moves are expected to bring major benefits in the long run. The stability in mid-market deals, less affected by big market swings, supports this strategy.

Current Market Overview and Trends

The UK M&A market remains strong, despite fewer deals in both number and value. In 2023, there were 18% fewer deals compared to 2022, and values were much lower than in previous years. The value of deals fell to £83bn in 2023. This was down from £269bn in 2021 and £149bn in 2022. But, healthcare, technology, and financial services are still going strong, bucking the slowdown trend.

Private Equity plays a big role, making up 42% of deals by volume and 55% by value in 2023. The focus is on high-growth areas like tech, media, telecom, energy, pharma, and healthcare. ‘Take-private’ deals are also big, making up 53% in value of all UK deals in 2023. This increase is because UK companies are often valued lower than those in the US.

Companies are making strategic deals to transform their businesses. There’s a lot of action in tech, energy, and health, but not so much in consumer markets. Due to high financing costs, there’s more interest in private credit. Businesses believe planning ahead and aligning buyer and seller expectations can open new doors.

The partnership between Lithia Motors and Pendragon shows strategic growth despite tough economic times. Technology, media, and telecom sectors keep seeing a lot of deals thanks to tech advancements. For success in today’s market, focusing on creating value and improving performance is key.

Private Equity’s Influence on the UK M&A Market

Private equity has shaped the UK M&A market significantly. In 2023, it made up 42% of all deals by volume and 55% by value. This shows its central role. The total number of deals was 18% lower than in 2022, with the value dropping to £83bn from £269bn in 2021. Yet, private equity’s impact stayed strong.

Investor confidence is bouncing back despite economic difficulties and high costs. Private equity firms have plenty of money and are investing in sectors like Technology, Media, Telecom, Energy, Pharma, and Healthcare. These areas are appealing because they are stable and likely to grow.

Hugh Lloyd Ellis from PwC UK notes that despite challenges, there’s lots of capital and a need for good value plans. This might boost deal-making. With 56% of top execs seeing deals as key to competing, private equity is keenly choosing investments. They aim to make their numbers work, even with costly capital.

The year 2023 showed that being well-prepared is crucial for deal success. As buyers and sellers start to agree more on price, those ready to act have an advantage. Doing your homework and checking the seller’s past tax issues can lead to smarter choices.

Environmental, social, and governance (ESG) factors are becoming key in M&A strategies. Investors are weighing a company’s sustainability efforts more heavily now. This is part of a shift towards more responsible investing.

Megadeals and Their Impact

Megadeals have always been crucial in the M&A market, even though they are less frequent now. In 2023, UK deal volume was 18% lower than in 2022. It was almost a third lower than in 2021. The total deal value in 2023 dropped to £83bn, compared to £269bn in 2021 and £149bn in 2022.

Despite these trends, megadeals are still important. In 2023, the energy sector’s megadeals almost tripled from the previous year. Sectors like TMT, energy, pharma, and healthcare continue to draw big investments. For example, Cisco’s proposed US$28bn acquisition of Splunk in September 2023 shows the strong interest in tech deals.

Even though the M&A market value dropped by 6% in 2023, big transactions bring hope. Deals such as Exxon’s US$59.5bn bid for Pioneer and Chevron’s US$53bn bid for Hess could boost the market. These big deals not only increase deal value but also influence industry trends.

Strategic realignments and market expansions drive these big deals. Over half of senior execs see deals as a way to keep up with market changes. Also, 21% of CEOs think their companies won’t last another decade without new directions. This shows how megadeals can quickly evolve businesses.

In the UK, there’s a cautious optimism about big deals despite harder financing. Financing has become tougher and costly, with private credit becoming more important. Still, the value of these deals in business transformation and seizing new chances is clear.

UK M&A Market Analysis

In the UK, the value of M&A deals has seen big changes due to economic troubles. The total deal value fell sharply to £83bn in 2023 from £149bn in 2022. This was down from £269bn in 2021, showing the market’s ups and downs.

Despite the tough times, there’s hope for 2024. Sellers and buyers are coming closer in their price expectations. With more stable financing options, M&A activities could pick up again. The healthcare sector stands out for seeing more deals in 2023.

Private equity firms played a major role, making up 42% of the deal volume. They also accounted for 55% of the value. Over half of senior executives see deals as essential for growth. Sectors like technology, energy, and healthcare are drawing a lot of attention from private equity.

American private equity firms are buying more in the UK, with a 35% rise in deals in 2022/23. This jump, from 134 to 181 transactions, shows the UK’s appeal for M&A. The early months of 2024 saw more big deals, signalling a possible strong recovery.

Still, challenges like high inflation and tricky supply chains weigh on the M&A market. These issues add uncertainty. Yet, the ongoing interest in strategy-focused deals hints at a positive future for deal-making.

The Role of Regulatory Changes

M&A transactions in the UK are increasingly influenced by evolving UK M&A regulations. The National Security and Investment Act and the Foreign Subsidies Regulation have changed the market significantly. These changes, alongside the UK’s exit from the EU, mean deals must be checked by both UK and EU authorities if they meet certain thresholds.

The review by Lord Hill, effective from 10 August 2021, was a key change. It aimed at making London a go-to place for high-growth companies to list. This was part of a bigger plan to boost the UK’s appeal for M&A activities. Yet, SPACs present challenges due to their high dilution rates, which are not clear until the merger phase. This adds complexity to the regulatory environment.

The Takeover Panel plays a vital role in keeping the market fair. It uses the Takeover Code, applying both private and public sanctions when needed. Rules like the mandatory offer rule help keep the market transparent and competitive. The “put up or shut up” rule forces an announcement of a formal bid within 28 days, refining control over mergers.

Deal structures in 2023 have adapted to the stricter regulatory environment. There’s a bigger focus on detailed due diligence. Buyers are carefully checking compliance and risk management now more than ever. They’re also negotiating for better protection and higher liability limits because of these uncertainties. Deals now often include ‘material adverse change’ conditions due to legislative changes.

Uk m&a regulations

Ownership issues around intellectual property and customer bases are becoming big challenges. This is especially true when companies are divided. The cost and ownership problems related to shared services like HR and IT have grown larger after the regulations changed. These ongoing regulation changes are key in shaping merger strategies today, making them crucial for successful navigation in the M&A scene.

Sector-Specific Outlook: Healthcare and Pharmaceuticals

The healthcare and pharmaceuticals sectors have shown strong performance amid market pressures. They lead in M&A activity, proving their importance in the UK economy. Even with a 18% drop in UK deal volume in 2023 compared to 2022, healthcare reported more deals. This shows a bright future for strategic buys, focusing on innovation and new health solutions.

Though UK’s total deal value fell to £83 billion in 2023, healthcare remained a key investment area. Private equity firms played a big role, making up 42% of transactions by volume and 55% in value. This indicates growing trust in these sectors.

Healthcare mergers and acquisitions are set to grow, thanks to new tech and an ageing population. Sales for GLP-1 drugs might hit US$100 billion, likely sparking more deals in 2024. This suggests a fast pace of market consolidation in pharmaceuticals.

Expect more action in biotech, clinical research, drug development and medtech acquisition. Hospital challenges could lead to more deals there too. Also, companies in telehealth and health tech remain attractive for investments, helping tackle staff shortages and budget cuts.

Experts in healthcare and pharmaceuticals are getting better at understanding complex deals, expecting more activity in 2024. Demographic changes and new regulations will keep driving deal interest. This sector’s strength helps support the UK’s overall mergers and acquisitions scene.

The Role of Strategic Transactions in Business Transformation

To stay ahead, companies must embrace Strategic M&A. In 2023, the UK saw a decrease in M&A activity, 18% lower than in 2022. Still, sectors like healthcare are doing well, with more deals in 2023.

Private Equity plays a huge part, making up 42% of all transactions. They lead the way in sectors like TMT and healthcare. Moreover, 56% of top bosses see these deals as essential for growth and staying up-to-date.

Global deal values halved in 2023, dropping to US$2.5 trillion. Deal numbers also went down by 17%. Yet, large deals in energy and utilities grew significantly.

With markets improving, the gap between buyers and sellers is closing. The S&P 500 and NASDAQ composite grew recently. This change suggests strategic M&A will keep being key for businesses to evolve and succeed.

Challenges and Opportunities Ahead

In 2023, the UK’s M&A market saw a big drop, with 18% fewer deals than in 2022 and a 33% decrease from 2021. The total value of deals fell sharply to £83bn, down from £269bn in 2021 and £149bn in 2022. This shows the challenges companies face in the market.

The market faces tough times with economic shifts, high inflation, and higher interest rates. Yet, these challenges open doors for new M&A opportunities. Private equity (PE) stepped up in 2023, making up 42% of all deals and 55% of the deal value. They focus on sectors like TMT, energy, pharma, and healthcare because of the high profit potential.

Prospective market challenges

Changes are affecting sectors like TMT, energy, and health, which are very active. In contrast, the consumer market is less busy. Loans are harder and more costly to get, making private credit more important. Also, a smaller gap between what buyers and sellers expect can create M&A chances. This means being well-prepared and strategic is advantageous.

The healthcare sector proved strong, with more deals in 2023 than in 2022 despite economic hardships. This strength and the need for smart deals underline the importance of detailed M&A analysis. To make the most of these opportunities, good preparation and strategy are key.

Conclusion

Reflecting on the UK’s market for mergers and acquisitions (M&A) in 2024 shows a mix of challenges and optimism. The number of deals made in 2023 was close to that in 2022. But, the value of inbound deals dropped sharply from £191 billion in 2022 to £109 billion in 2023. The market remained strong, with more private deals in 2023 than the year before.

Companies have been joining forces to stay strong. For example, Lithia Motors and Pendragon became the UK’s second-biggest car dealer by revenue. Law firms like Latham & Watkins played a key role, advising on major acquisitions. Even with challenges, private equity buyers continued to invest, though less than before.

The UK M&A market is now facing new rules after Brexit. The National Security and Investment Act 2021 and the new Foreign Subsidies Regulation bring extra checks but also clear guidelines for deals. Despite this, the market outlook is positive. Strategic planning will help companies grow and transform. This will reshape the UK’s business world in the coming years.

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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