M&a financing in the uk

“Financing M&A in the UK: Trends and Predictions”

Is the old way of funding mergers and acquisitions in the UK outdated?

The way we fund M&A in the UK has changed a lot. This is due to the economy and changes in specific industries. In 2023, the value of deals fell to £83bn, down from £269bn in 2021. This huge drop, and an 18% fall in the number of deals since 2022, shows how tough things are now for businesses and their financiers.

Private equity has become more important, making up 42% of all deals by volume and 55% by value. Surprisingly, 21% of UK CEOs are worried their companies might not last ten years if things don’t change. Meanwhile, 56% of top execs believe deals are key to staying competitive.

In 2023, private equity firms focused a lot on TMT, energy, pharma, and healthcare. These sectors are growing fast, which makes them attractive. But, getting the money for deals is getting harder. We’re seeing more private loans and bigger equity investments than before.

As things keep changing, we need new ways to fund M&A to succeed. This article looks at the current trends and what might come next. We also talk about how to adapt and give important financial advice and insights into the UK M&A market.

Overview of the UK M&A Market

The UK M&A market has seen a notable drop in deal numbers since 2021. In 2023, there were 18% fewer deals than in 2022, and almost a third less than in 2021. This mirrors broader global patterns. Despite this, the health sector reported an increase in deals in 2023, unlike others.

2023 saw total deal values fall sharply to £83bn, from £269bn in 2021 and £149bn in 2022. This points to a significant slowdown in the market. PE transactions, focusing on sectors like tech, media, telecom, energy, pharma, and healthcare, made up 42% by volume and 55% by value.

Lucy Stapleton from PwC UK points out how the tough economic conditions have affected deals. But there’s now a more positive outlook for the UK M&A market as companies adjust. High inflation, high interest rates, and global politics continue to pose challenges.

More than half of the senior executives (56%) view transactions as key for keeping up with changes. This shows that M&A is vital for renewing businesses. Also, new financing methods like equity investment and sustainable financing are emerging as responses to these difficulties.

Despite obstacles, there’s hope for more deal activity, thanks to PE funds ready to invest wisely. This raises confidence in the market’s future. Tech, media, telecom, and energy are busy sectors, whereas consumer markets are less active.

The use of warranty and indemnity insurance in UK M&A deals has grown to bring more certainty to deals. The Bank of England’s interest rate is currently 5.25%, with possible cuts ahead. This could help manage UK inflation and interest rates, boosting confidence in acquisitions.

Public M&A has slightly grown, showing interest in high-quality assets. Regulatory challenges, especially antitrust, remain but are less worrying than before. Looking to 2024, the market seems cautiously optimistic. There’s a focus on value and big M&A activities expected in sectors like tech, energy, and healthcare.

Current Trends in UK Financing

The UK financing scene for mergers and acquisitions has seen big changes recently. In 2023, the deal value dropped to £83bn from £269bn in 2021 and £149bn in 2022. This shows the tough times in the market, with deal volume 18% lower than last year and nearly a third lower than 2021.

But, the health sector showed growth, with more deals in 2023 than in 2022. Private equity was key in M&A, making up 42% of transactions by volume and 55% by value. It focused on sectors like TMT, energy, pharma, and healthcare.

Companies are finding new ways to deal with high capital costs. They’re using more equity investments, sustainable financing, and more minority interest deals. They’re also paying more attention to how deals are structured, aiming for longer-term goals and addressing ESG objectives.

High capital costs are a big challenge, pushing for creative value creation plans. Financing methods are changing, with private credit becoming more important, making borrowing tougher and pricier. PwC’s 27th UK CEO Survey showed one in five CEOs worry about their company’s future if things don’t change.

Regulatory scrutiny has also increased, with the Competition & Markets Authority looking closely at 14 cases between April 2022 and April 2023, a 40% jump. This makes deal completion harder, forcing firms to be smarter and more creative with their financing and deal-making strategies.

The Role of Private Equity in M&A

Private equity plays a big part in Mergers and Acquisitions (M&A). It’s involved in more than a third of all deals. This shows how big an impact private equity has on combining companies. Private equity funds gather money from investors to invest in private companies. They aim for a high return on investment.

Private equity helps with different types of M&A dealings. These include mergers, buying of companies, and extra acquisitions to boost a company. The perks of these deals are many. They save money, bring in revenue from different places, and expand the company’s reach. Also, investing in private equity brings new technology, skills, and talent. This can lead to growth and fresh ideas.

Private equity is also about putting money to work smartly. This can make a company grow fast and draw in more customers. Experts like Hugh Lloyd Ellis from PwC note that a lot of ready to invest capital makes private equity firms more active. They especially look at buying within tech, media, energy, and health sectors.

Private equity influence

Private equity and corporate M&A have different goals. Corporate M&A wants to bring in new products or reach more markets. But, private equity focuses on making the companies they buy more valuable. This usually means making them run better, offering strategic advice, and giving management support. Even with a recent drop in global M&A actions, Bain & Company expects a lot of activity from private equity.

Private equity transactions tend to happen faster than corporate ones. They look to quickly add value. There’s a strong focus on evaluating companies carefully. This includes checking out deals beforehand, doing thorough due diligence, and making detailed investment plans. Private equity’s deep involvement in M&A shows a solid way to drive growth and expansion. This is done through smart money use and expert advice.

M&A Financing in the UK

Acquisition financing in the UK is changing fast due to a tough and costly environment. A survey with senior executives from 330 companies showed differing preferences for M&A funding. 24% see private equity as the top funding source and 21% lean towards credit funds. Interestingly, 16% prefer using their cash reserves.

Traditional loans and equity investments are crucial in M&A deals. Most leveraged buyouts (LBOs) mix 90% debt with 10% equity. For example, Michael Dell and Silver Lake Partners took Dell private in a deal worth $24.4 billion. Also, mezzanine financing, with its 20% to 30% interest rates, plays a key role. This type of financing often includes warrants, showing ownership of 1% to 5%.

The possibility of Capital Gains Tax (CGT) rising from the current 20% has UK business owners thinking of selling early. With interest rates at 5.25% in March 2024 and possible cuts ahead, M&A financing costs may change. This prompts the need for new financial strategies.

There’s a rise in earn-outs and creative deals in the UK’s M&A scene. This aims to close the price gap between buyers and sellers. With the 2024 general election uncertainty, more deals are being made to dodge higher taxes. Sellers are getting flexible with deal structures to match buyers’ needs.

Differences in business values can cause deals to fail, leading to the need for inventive deal structures. Economic stability is likely to influence the price, closing the gap between expectations. This could lead to more investments and acquisitions, driven by different economic factors in the UK M&A market.

Sector-Specific Trends: Healthcare

In 2023, the UK’s healthcare sector saw more M&A actions than in 2022. This was in contrast to the lower deal values seen in other sectors. This increase shows the growing interest in healthcare investments as companies adjust to market changes.

Private equity made up 42% of the volume and 55% by value of transactions. This points to the sector’s lure for investors. The drive for strategic growth and ample private equity funds have made life sciences a key area for investment. This aligns with PwC’s 27th UK CEO Survey, stressing the need for transformative deals to survive long-term.

Non-specialist home care has seen strong M&A activity too. Its profits are now higher than before COVID, showing its durability and growth prospects. About 56% of senior bosses believe such deals are critical to staying relevant, highlighting M&A’s role in business evolution.

Yet, the sector is not without its problems. Staff turnover in social care is 44%, far higher than the NHS’s 11%. The Care Quality Commission points out the inconsistent care for those with learning disabilities or autism. These issues, alongside growing utility costs and higher interest rates, affect operations.

Despite these obstacles, healthcare spending remains robust, only behind groceries and child-related expenses. With a focus on technology, the sector aims to improve care quality and efficiency. It is set to keep attracting investment and developing further.

Technology and Innovation in M&A

In our fast-changing world, bringing AI into healthcare and other fields is crucial. Over half the UK’s business leaders consider merging or acquiring to stay ahead. It’s about joining forces for growth and innovation, not just getting bigger.

Companies know that advanced technology is key to keeping ahead. AI’s growth in healthcare shows this, as firms buy to get new tech and talent. Such moves boost efficiency and create forward-looking business plans.

Expect a rise in UK M&A in 2024, with many sectors merging more. This aims for larger scale, smoother operations, and bigger market share. Companies also enhance their strategies and execution with tech services. These are backed by specialized technologies for better efficiency and successful deals.

The impact of AI in healthcare is huge, improving patient care and offering good investment returns. Despite hurdles like regulatory costs and privacy issues, the advantages of tech and innovation in M&A stand out. Companies are finding ways to overcome these obstacles effectively.

M&A is strengthened by thorough due diligence on digital investments. Vendor due diligence, for example, independently checks a company’s tech strategy and structure. It helps both buyers and sellers understand the tech strengths and areas needing work before sealing a deal.

Regulatory and Legislative Impacts

The M&A regulatory environment is changing a lot. This affects how deals are made and plans are set. The NSI Act and FSR, starting on 12 July 2023, make the UK legislation more complicated. These laws mean more checks are needed to get M&A deals done right.

In Asia, there’s a big change with new merger control rules. And, competition authorities are looking at more than just company sizes to stop unfair mergers. This makes firms think again about their strategies, especially with growing antitrust concerns.

The European Court of Justice made a big decision in the Towercast case. It talked about looking at deals by big companies that aren’t usually checked. The US is also doing more checks, even for smaller deals. This shows that authorities everywhere are paying more attention.

China updated its laws to check on more deals that might hurt competition. After Brexit, the UK is checking more deals too. They’re focused on how deals affect competition, change markets, and impact innovation. This means a tougher time for companies making deals.

The CMA is making moves on big issues, like when one company gets too powerful. The US is also getting tougher, looking at how mergers affect new competitors and prices. This is a new direction for regulations.

Companies that deal with a lot of regulations actually do more mergers. And these tend to go well, bringing better results and lowering risks after the deal. If a company’s used to dealing with regulations, they might spend more on buying other companies.

Firms that are used to lots of rules tend to do better after buying others, especially smaller deals. Afterward, they usually have to deal with fewer rules. On average, they see a 7% drop in how much regulations affect them when they buy smaller or private companies.

Economic Recovery and M&A

The UK’s economic revival paints a bright picture for M&A actions after the recession. American firms, especially, have upped their game. They bought 35% more UK companies in 2022/23, doing 181 deals compared to 134 the year before. This bump highlights how appealing the UK is for global investors.

Yet, the UK’s M&A scene did see a dip in 2022, becoming slower after the bumper activity in 2021 because of Covid-19. Even so, the UK stayed top in Europe and third globally for M&A allure. This ranks its attractiveness for deals both from within the country and from abroad.

Things like the current Capital Gains Tax at 20% and talk of it going up after the 2024 elections affect the market. In March 2024, the Bank of England kept interest rates at 5.25%. They also said rates might go down in the next year. Such moves make buyers and sellers think up creative deals. They’re using tools like earn-outs and warranty insurance to bridge valuation gaps and seal deals successfully.

2024’s first quarter saw mega deals bounce back, showing more market confidence. This is thanks to better sentiments and potential tax law changes, plus forecasts of economic stability. Right now, the UK M& toA market favours those looking to buy. This setting helps negotiate better deal terms. Together, these factors keep the deal flow strong, drawing both local and international investors into the UK’s M&A scene after the recession.

Strategies for Successful M&A Deals

Strategic M&A planning is crucial for adding value and making big changes. In 2023, the UK saw 18% fewer deals than in 2022. The total value dropped to £83bn. It’s vital to have a clear plan for M&A success today. Companies need to link their M&A steps with their big goals for change. This is to keep thriving. PwC’s 27th UK CEO Survey shows a concern. One in five CEOs think their company won’t make it ten years from now without change.

Strategic m&a planning

The technology, media, and telecom areas kept their deal numbers up. This is thanks to the big need for new tech skills. These sectors show the value of targeting areas ready for big changes. Private equity played a big part too. It was behind 42% of deals by number and 55% by value in 2023. It’s pushing M&A activities in tech, energy, pharma, and healthcare.

To make the most of these trends, top execs must plan M&A carefully. 56% of them see deals as key to staying ahead. Their plans should include smart thinking and creative ways of financing. They should think about all sorts of funding. This includes loans, shares, and mixtures of both, to help growth and value after buying.

It’s vital to match M&A deals with long-term goals for changing the business. This means planning well for buying and adding new bits to the company. It’s also about understanding the money side well. Smoothing out price differences between buyers and sellers can make a company worth a lot more. The logistics sector has shown us good examples of this.

Winning at M&A deals involves many things. Key things include the goals after buying, planned extra payments, and thorough checks. In the end, good M&A planning aims at creating value and making big changes. This will help businesses face challenges and grab new chances. It ensures their success in the long run.

The Future Outlook for UK M&A

Market conditions in the UK are starting to get better, leading to a more hopeful future. Even with economic hurdles like high inflation and rising interest rates, investors are feeling optimistic. This change comes as inflation dips and interest rates begin to steady, making the market better for mergers and acquisitions (M&A).

In 2023, the UK saw a big drop in the total value of deals to £83bn from previous years’ highs. Deal numbers also went down, with 18% less than 2022 and almost a third less than in 2021. Yet, the health sector saw more activity, bucking the general downward trend.

Private equity (PE) plays a big role, making up 42% of all transactions by volume and 55% by value in 2023. PE firms are investing carefully in areas with high growth potential like technology, energy, pharma, and healthcare. These areas are seeing a lot of deals and are where analysts expect growth in the future.

Many top business leaders think that making deals is the best way to keep up with market changes. They feel pushed to change by the fast-moving business world. This means they have to think more strategically about deals and find new ways to finance them.

Tough economic conditions have made financing deals more costly and difficult. Yet, private credit is becoming more important. Some sectors are still doing well, like technology, energy, and health, unlike consumer markets which are struggling.

Companies are being told to think outside the box with finance, aim for bigger growth, and get their assets ready for sale to do well in the deals market. Taking these bold steps is key to making the most of changing M&A trends and keeping shareholders happy.

Building trust with shareholders is getting more important for companies. They’re looking at new ways to do this, especially with the upcoming CMA consultation in January 2024. This aims to make things clearer and get merger discussions going sooner.

To wrap it up, the M&A scene in the UK might have seen a recent dip, but it’s set to bounce back. The focus is on sectors that are really important and on navigating new rules. This shows there’s plenty of opportunity to kickstart M&A activities in the UK again.


The UK M&A market is facing complex changes in today’s economic world. Despite global worries and possible tax hikes, there’s still hope and cautious optimism.

The Bank of England has kept interest rates at 5.25% since March 2024, anticipating possible reductions. This decision helps make costs more predictable for M&A activities. It builds confidence among those looking to buy and invest.

Sellers are getting creative with their deal-making strategies. They’re using earn-outs, escrow accounts, and insurance to close deals. Energy, technology, and pharmaceuticals are growing fast. But banking and healthcare are catching up more slowly.

A strong future is expected for the UK M&A scene. Private equity plays a big part, with 24% of senior executives seeing it as key for funding. Yet, there are hurdles like regulatory and political challenges. Even so, investing wisely in key sectors and using clever deal strategies could keep the UK M&A market thriving for years to come.

Written by
Scott Dylan
Join the discussion

This site uses Akismet to reduce spam. Learn how your comment data is processed.

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.


Make sure to subscribe to my newsletter and be the first to know about my news and tips.