15/07/2024
Uk m&a industry forecast
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“Forecasting Industry Trends for UK M&A”

Can the UK’s M&A market defy the global downturn and emerge stronger in 2024?

In recent years, the UK M&A landscape has shifted quite a bit. Deal activity saw an 18% drop from 2022 to 2023. It fell by almost a third from 2021. Globally, deal values have halved from over US$5tn in 2021 to US$2.5tn in 2023. Deal volumes also saw a 17% dip. The biggest deals, or megadeals, plummeted by 60% from their 2021 peak. Despite this, there’s a growing sense of hope. With interest rates levelling and inflation dropping, dealmakers are becoming more positive. They see signs of a possible bounce-back in the UK M&A market.

Today’s drive for corporate change is highlighted in PwC’s 27th UK CEO Survey. It shows companies picking mergers and acquisitions for fast tech adoption and decarbonisation. By embracing these shifts, firms are adjusting well to the fast-paced market. Private Equity (PE) groups are also making a strong comeback. A key example is ASDA’s big move to buy the EG Group UK. This shows the influence of strategic mergers in fast organisational shifts. It sets an encouraging scene for the UK M&A market’s future.

Understanding the Current State of the UK M&A Market

The UK M&A market saw an 18% drop in deals in 2023 compared to last year. This decrease is part of a global trend, leading to a fall in total deal value from £269bn in 2021 to £83bn in 2023. However, the healthcare sector has grown, showing strength in these tough times.

Megadeals have become rare in the UK, largely because private equity (PE) firms are waiting for the market to stabilise. In 2023, PE deals made up 42% of all deals by volume and 55% by value. This shows their significant influence despite the market’s slowdown.

UK companies are facing pressures that demand big changes. For example, ASDA’s purchase of EG Group UK highlights the push for tech and reaching more customers. These steps are crucial for doing well in today’s economic climate. Challenges include high inflation, rising interest rates, and low consumer spending.

Today’s economy has also affected how deals are financed. Private credit is more important now, making getting funds harder and more expensive. Yet, 56% of top executives still see deals as key to keeping up with market trends. They believe buying other companies can help them move forward.

The number of deals coming into the UK has dropped a bit, but some areas still attract a lot of interest. Technology, media, telecommunications, energy, and healthcare are drawing PE investors. Although the total value of deals from outside the UK went down from £191 billion in 2022 to £109 billion in 2023, the number of deals stayed fairly steady.

Key Drivers Shaping UK M&A Activity in 2024

In 2024, the UK M&A scene will change due to many factors. Private equity firms are focusing on key sectors like technology, media, and telecommunications (TMT), energy, pharmaceuticals, and healthcare. These areas were big players in 2023, making up 42% of deals by volume and 55% by value.

Consumer spending changes, interest rate shifts, and geopolitical issues will affect the M&A outlook. The upcoming general elections add to this complexity. These factors will lead to a selective rise in M&A actions, pushing companies to be more strategic in their approach.

The value of M&A deals targeting UK companies dropped in 2023 to £109 billion from £191 billion in 2022. However, the number of deals stayed relatively stable, showing continued interest in UK assets, but with more caution in valuations.

About 53% of M&A transactions in the UK in 2023 were take-private. Big deals included Abcam’s buyout by Danaher Corporation for around $5.7 billion and the partnership between Lithia Motors and Pendragon. The rise in public takeovers under the City Code shows a move towards privatisation.

New regulations and tougher debt financing are reshaping deals. Increased shareholder activism is pushing companies towards meeting ESG goals. The market for secondary sales of quality assets grew as the choices for IPOs and M&A exits narrowed.

Private equity buyers are now looking to non-traditional lenders and equity co-investors. The National Security and Investment Act 2021 and the Foreign Subsidies Regulation are affecting deals as well. This scrutiny is expected to continue into 2024 and will mold the M&A landscape.

Valuations are still below a three-year high, but they’re expected to go up. This offers chances for companies that are ready to move. The Financial Conduct Authority is trying to make IPOs easier, which could boost M&A activities as firms look for other ways to exit.

Global trends are shifting too. M&A deal values and volumes fell globally in 2023. Yet, the tech sector, especially AI, could see a significant increase in M&A action. Stakeholders in the UK M&A market must keep an eye on these changes to seize new opportunities and face upcoming challenges.

Sector-Specific Trends in the UK M&A Landscape

In the current UK M&A scene, trends vary greatly between sectors. The TMT sector is booming, thanks to cloud tech and GenAI. Plus, there’s a big push towards sustainable energy. These movements match the goals of many companies to adopt new tech and be more sustainable.

Sector analysis uk m&a

Also, the health sector is seeing more deals in 2023 than last year. It’s doing better than other industries, which are seeing fewer deals. This shows that mergers in specific areas are driving growth in the UK market.

Private equity is behind 42% of all deals, and 55% of the deal value. It’s making a big impact, especially in energy, tech, and pharma. These trends show how the UK market is changing and how companies can take advantage of these shifts.

UK M&A Industry Forecast for the Upcoming Esar

The UK’s M&A scene is poised for a positive shift next year. Business mergers are expected to slowly recover. This suggests that strategic adjustments are key for moving forward. Last year, the total value of deals fell to £83bn from £269bn in 2021 and £149bn in 2022. This shows a careful market but also hints at a chance for revival.

TMT, energy, pharma, and healthcare sectors are still drawing in big interest. In 2023, Private Equity (PE) contributed to 42% of all deals by number and 55% by value. This confirms PE’s strong presence. Businesses are looking closely at these sectors due to their growth potential and ongoing changes.

56% of top executives think deals are crucial for staying updated with market changes. M&A is vital for swiftly transforming businesses. But, with rising capital costs, companies need solid plans for value creation. Financing deals is expected to get tougher and more costly, with private loans being key.

There was a drop in the UK’s inbound M&A deal value to £109 billion in 2023 from £191 billion in 2022. However, the number of deals stayed almost the same. What’s more, take-private deals made up about 53% of all UK deals in 2023. This marks a move towards private ownership.

The outlook for the UK’s deal-making seems guardedly hopeful. Adjusting strategies wisely is important. In particular, industries like healthcare that keep doing well will be crucial in steering next year’s M&A direction.

The Impact of Innovations and Technology on M&A Transactions

Technology has hugely changed M&A deals in the UK. Companies now often aim to buy businesses similar in tech. This shift hasn’t always matched up with the deal’s price tag. Artificial intelligence and big data have changed how businesses prepare for and finalise mergers, making things more efficient.

Innovation in mergers helps companies blend new tech with their key operations. This strategy has boosted growth by 6-10% in innovation output after mergers. Even though there was an 18% drop in UK M&A deals in 2023 and the total deal value fell to £83bn, from £269bn in 2021, the technology sector still saw a lot of action. This is thanks to advances in cloud computing and artificial intelligence.

Private equity plays a big role in UK M&A, making up 42% of the deals by volume and 55% by value in 2023. Even as the market decreased by 17%, TMT sector deals showed strength with only a 2% drop, likely because of its focus on technology.

Looking ahead, the UK’s M&A future is bright, thanks to steady investment conditions and strong sectors like TMT, energy, and healthcare. Their growth is driven by tech, showing how crucial innovation is for M&A. These trends could mean more deals in tech-heavy sectors, especially as we move into 2024.

Private Equity’s Growing Influence in UK M&A

Private equity has been a major player in the UK market, despite uncertainties. In 2023, private equity deals made up 42% of all transactions and 55% of the total deal value. This shows they are becoming more important in mergers, even as the total number of UK deals fell by 18% from 2022 and by nearly a third from 2021.

Private equity dominance uk

In 2023, the overall deal value fell sharply to £83 billion from £269 billion in 2021 and £149 billion in 2022. However, private equity firms focused their investments on key sectors. These include technology, media, telecoms, energy, pharmaceuticals, and healthcare.

These investments are changing, with more money going into equity and sustainable finance. There’s also more interest in buying minority stakes.

The presence of equity firm acquisitions in the UK is part of a larger trend of consolidating markets. Private equity has impacted nearly every sector. The wealth management sector, in particular, saw nearly £1 billion in private equity deals in 2023. This sector made up 82% of the year’s total transactions. Also, there was an increase in foreign buyers, especially from North America. This shows the ongoing attraction to UK asset managers.

Private equity’s success also comes from focusing on making companies more valuable. They aim for better sales and more efficient operations. This approach is believed to be crucial by over half of senior executives (56%) for staying competitive.

More companies are looking at ways to improve efficiency and sales. Private equity is key in this, influencing the entire UK market for buying and selling companies. This link between private equity and market activity suggests strong deal-making in the future. This is due to careful and ongoing investments.

Post-Brexit Dynamics in the UK M&A Market

The impact of Brexit on mergers has been deep, changing the UK’s M&A market since leaving the EU. At first, there was a dramatic 70% fall in transactions. This forced deal advisors to quickly adjust their plans. However, the market has bounced back, with 2,634 inbound UK M&A deals in 2023, slightly less than the 2,739 in 2022.

UK take-private transactions now make up about 53% of all UK deals in 2023, up from 46% in 2022. This highlights the growth in private M&A deals. Private equity buyers are very active, working with unique lenders and partners for financing. They are mastering the challenges of buying after Brexit.

The launch of the National Security and Investment Act 2021 has been key. It ensured that 93% of submitted transactions were approved quickly. These legal updates, and the Foreign Subsidies Regulation in 2023, have shaped M&A deal structures and schedules. They show the increased checks that will likely stay until at least 2024.

The total value of deals in the UK fell sharply to £83bn in 2023, from much higher figures before. High inflation, rising interest rates, and global tensions have made these conditions hard. This makes getting finance tougher and more costly.

Yet, certain industries like tech, media, pharma, and healthcare are still getting private equity funds. Investment from the US in UK tech, especially in AI, IoT, and cybersecurity, has grown. This leads the way in the UK’s M&A scene after Brexit.

Strategic Approaches to Successful M&A Deal-Making

In today’s mergers and acquisitions world, having smart strategies is key to deal success. Companies often choose programmatic M&A. This involves making several small but meaningful deals instead of one big buy. This approach is linked to better rewards for shareholders, offering varied and steady growth.

Before making any moves, doing thorough market research is essential. It gives insights that help in choosing the right companies to merge with or buy in the UK. With solid data, companies can spot the best chances, lower risks, and keep up with market changes.</

Companies like ASDA show how being flexible and creative is crucial in merger success. Leaders who use clever strategies can deal with market shifts well. This helps them stay ahead in the competition.

In 2023, the value of UK M&A deals dropped dramatically to £83bn from £269bn in 2021. However, health care went against this trend by having more deals. Knowing which sectors are doing well is important for making smart M&A choices. It helps focus on areas with growth, in line with market trends.

Private equity was a major player in 2023, making up 42% of deals by volume and 55% by value. Firms in private equity focus on areas like technology and health care. They have clear plans for adding value by improving business and operations.

At the end of the day, a good M&A strategy needs careful planning, making well-informed choices, and flexible leadership. This aims at achieving lasting and profitable growth.

Conclusion

Looking at the changes in the UK M&A market, we see big shifts in the last year. The total value of M&A deals fell to £109 billion in 2023, a 43% decrease. The deal count also dropped slightly to 2,620.

However, certain areas like energy, tech, and pharma are showing strong M&A activity into early 2024. They’re proving to be dynamic despite overall declines.

There’s a bit more M&A happening in the public sector, showing a keen interest in quality. Private Equity (PE) remains active, focusing on buying and selling. One key move is Hewlett Packard Enterprise’s plan to buy Juniper Networks for $14 billion.

Also, AI is changing how deals work, especially in tech. This shift includes exploring new ways to finance deals, moving away from old methods.

Though regulatory challenges are still there, they’re less daunting than before. Banking and healthcare are recovering slowly. But, the 2024 outlook for UK M&A is hopeful, with smart, value-focused deals expected in tech, energy, and healthcare.

Despite a big drop in inbound M&A value from £191 billion in 2022 to £109 billion in 2023, signs point to a gradual recovery.

The UK M&A sector looks set for a phase of strategic evolution, driven by innovative financing and tech advancements. Amid economic and political challenges, aiming for sustainable and transformative objectives is key for the industry’s future success and stability.

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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