What will boost the UK’s M&A market after 2023? Industry insiders look to 2025, expecting big changes. These include digital shifts and the impact of COVID-19. Deloitte’s report states the finance role will change, focusing on data and automation. This will free up time for important tasks and team management.
Despite the challenges of 2023, such as inflation, there’s hope for M&A growth in 2024. Lower inflation and steady interest rates may boost deals. Early 2024 saw more big transactions than the start of 2023, showing promise.
Yet, overall deals dropped significantly from 2023 to 2024. From 4,013 to just 1,991. And EBITDA multiples dropped to 9x. The future may bring better conditions for deals.
In 2023, companies made more strategic buys than institutional investors. This is expected to change as investors become more active in late 2024. Growth is seen in finance, tech, healthcare, and energy. Advances in technology and eco-friendly goals will drive this.
By 2025, UK M&A will be influenced by tech, economic health, and planning. Digital transformations and adapting to market changes are key. So is the use of data and predictive models.
Introduction to the M&A Landscape in the UK
The UK’s M&A scene is changing fast, thanks to more companies joining together and the rise of working from home. In 2023, the total worth of deals fell to £109 billion. This was a big 43% decrease from before. The number of deals slightly dropped to 2,620, showing people are choosy but interested in good investments.
At the start of 2024, there was a clear boost in areas like energy, tech, and drugs. On the other hand, the banking and health sectors weren’t as busy. This change shows how the UK financial advice world is always adapting. Private Equity firms are a big deal, diving back into the market through buying and selling.
Big deals, like Hewlett Packard Enterprise aiming to buy Juniper Networks for $14 billion, are setting new trends. AI is changing how deals are done, especially in tech. Also, new ways of financing are taking over old ones, matching today’s financial trends.
There are fewer rules in the way, especially about competition law, making 2024 look good for UK M&A. Energy, tech, and drugs are moving fast. Yet, banking and health are slower to bounce back. This time shows a push for valuable deals and big changes, proving the UK’s M&A world keeps growing.
Impact of Economic Factors on M&A Activity
Economic factors had a big impact on M&A activity in the UK. In 2023, the number of deals fell by 18% from the previous year. It was nearly one-third less than in 2021. This was mainly due to high inflation and rising interest rates. Also, the total value of deals dropped to £83bn in 2023. This was a sharp decrease from £269bn in 2021 and £149bn in 2022. The slow economic growth made the slump in M&A transactions worse.
Despite these issues, there’s hope for better times by 2025. Predictions suggest that lower inflation and stable interest rates could help. This might encourage more deals, especially with more private equity getting involved. In 2023, private equity represented 42% of all deals by volume and 55% by value. This shows how important private equity is in the market.
The high cost of borrowing is a big problem for those making deals. They need strong plans to create value and prove that their investments are worth it. Over 56% of top bosses think deals are the best way to stay ahead in the market. In 2023, sectors like tech, energy, pharma, and healthcare were popular with private equity. However, the boost in deals might not spread evenly across all areas. For example, the consumer sector might not see much activity.
Global M&A activity is expected to pick up in 2024 after a slow 2023. CEOs are looking forward to more revenue and profits in the coming years. The energy sector, in particular, is set to see more M&A activity. This builds on the momentum from 2023. The tech sector is also poised for growth as buyers and sellers agree on prices. And in healthcare, especially biotech, more M&A activity is expected thanks to consolidation driven by research.
Looking forward, there’s a cautious but hopeful outlook for the UK’s M&A scene. Better economic conditions, like lower inflation and stable interest rates, could reinvigorate M&A activity that was slow in 2023. This points to a brighter future for M&A in the UK.
UK Mergers & Acquisitions Forecast
The UK’s outlook for deals in 2025 looks bright, with many factors boosting M&A activities. Investec’s data shows that we can expect more mergers and acquisitions due to the good economic situation. The decrease in global inflation and stable interest rates should make more transactions happen.
Early signs show that 2025 might bring better and more flexible conditions for businesses in M&A. The expectations of buyers and sellers getting closer together creates new opportunities. But, securing funds will get tougher and costlier, with private credit playing a bigger role. Still, the private equity sphere remains lively, with a focus on TMT, energy, pharma, and healthcare sectors.
In 2023, the UK saw 18% fewer deals than in 2022, and a third less than in 2021. The total value of these deals fell to £83bn from £269bn in 2021. The health sector was the only one with more deals. Private equity was important, making up 42% of the deal volume and 55% in value.
Regulatory changes and geopolitical shifts will also shape the M&A scene in 2025. The upcoming elections and market changes may favour buyers more, with EBITDA multiples possibly dropping. These changes could make mergers and acquisitions easier.
PE houses are getting busy with divestments and acquisitions. The first quarter of 2024 saw about 426 domestic and cross-border M&A activities. Although the total UK deal value has dropped recently, private equity’s interest in sectors like energy, technology, and pharma might boost the market soon.
The forecast for merging firms and acquisitions in 2024 and 2025 is still hopeful. Economic stability and strategic growth areas keep the UK’s deal-making outlook lively. Major deals in energy, technology, and healthcare are expected to define the M&A landscape.
Private Equity and Venture Capital Trends
In the UK, private equity and venture capital saw some big changes, especially with how the economy and market shifts played a role. In 2023, the deal count was 18% less than 2022. It also saw a significant drop from 2021. But, private equity still played a big role, making up 42% of all UK deals by number and 55% by value.
The health sector actually saw more deals in 2023 compared to 2022. This shows a strong interest in healthcare even with market ups and downs. The total value of deals in the UK fell to £83bn in 2023, down from £269bn in 2021 and £149bn in 2022. Yet, there’s still a lot of money ready for future deals, showing promise for what’s to come.
Sectors like tech, media, telecom, energy, pharma, and healthcare keep attracting private equity investors. Geoff Lloyd Ellis from PwC UK believes there will be more deals soon due to lots of available funds and pressure from investors.
According to PwC’s 27th UK CEO Survey, 21% of CEOs think their companies won’t survive ten years without adapting to new trends. 56% of leaders see doing deals as key to keeping up with changes.
Even though the value of VC exits in the UK dropped in the first half of 2023, the number of exits stayed the same. The latter half showed signs of bouncing back. The investment and exit ratio has gone up since 2021 but isn’t as high as before. This highlights an interesting trend in investments.
The UK government plans to boost venture capital with a £75 billion fund by 2030. They also expect another £50 billion from certain investment schemes. This shows the government sees venture capital as vital for economic growth.
The UK’s venture capital field is holding strong and keeping an eye on early-stage investments. This approach aims to embrace market changes, pushing growth and innovation in key development areas.
Technological Disruption in the M&A Space
Technological changes are shaping M&A activities, especially with AI being brought into the mix. Deloitte’s Finance 2025 report shows how AI and blockchain are changing finance operations. Companies such as Apple are pouring resources into AI to make their products work better together. This highlights how crucial digital innovation has become.
In 2023, the worth of worldwide deals dropped to US$2.5tn, almost half of what it was in 2021. Deal numbers also went down by 17%, from over 65,000 in 2021 to about 55,000 in 2023. Yet, the tech sector stayed strong, making up 85% of all deals in the TMT sector.
But, the tech sector faces a lot of checks on its deals. For instance, Cisco’s large US$28bn bid to buy Splunk in 2023 got a lot of attention. Rules are in place to prevent unfair competition and to make sure companies keep data safe. This shows how important it is to follow the rules when companies join together or change.
While big deals over US$5bn went down by 60% between 2021 and 2023, those in the energy sector tripled. This shows how shifts are happening in M&A as different areas react to tech changes and rules.
Even though AI in M&A makes things more efficient and gives a competitive edge, it also brings a lot of attention from regulators. Companies using digital changes have to be ready for these challenges. They need to find their way through these complex issues carefully.
The Role of Regulatory Scrutience
Regulatory scrutiny has a big impact on mergers and acquisitions in the UK and around the world. Bodies like the US’s Federal Trade Commission and the UK’s Competition & Markets Authority check big deals for risks of reducing competition. In 2023, there was a 33 percent drop in the value of these deals globally, the lowest since 2013. This happened because of stronger checks and worries about reducing competition.
These checks have made companies look for smaller deals that don’t get examined as closely. Yet, some recent losses in court for regulatory bodies may encourage companies to try for bigger deals again by 2025. The CMA, for instance, has increased its in-depth reviews by 40 percent from April 2022 to April 2023. This shows they are really focusing on keeping the competition fair in mergers and acquisitions.
Companies are also dealing with new rules on Environmental, Social, and Governance (ESG) factors. The EU’s Corporate Sustainability Reporting Directive is making companies think more about ESG when they make deals. This adds another layer of complication to mergers and acquisitions because of the need to meet ESG standards.
Even though there were fewer deals in 2023, things might get better in 2024. Experts think the number of deals will go up thanks to more stable economic conditions and maybe less strict checks on mergers. Also, private equity might play a big role because it has $2.59 trillion ready to invest, especially in areas like artificial intelligence and healthcare.
The financial services sector saw a 60 percent jump in deals in the first three months of 2024, reaching a total of $97.5 billion. The rules around mergers will keep shaping the marketplace. Companies in the UK need to stay aware of these rules to succeed, making sure they follow the law while finding the best opportunities in the changing world of mergers and acquisitions.
Sector Focus: Healthcare and Pharmaceuticals
The healthcare and pharmaceutical industries are thriving in the mergers and acquisitions (M&A) scene. By 2024, these areas are set to see more M&A action. This is due to big pharma eyeing medium-sized biotech firms for innovation and to fill product gaps.
One key highlight is the expected growth in the GLP-1 drug market, with sales possibly hitting US$100 billion. Novo Nordisk and Eli Lilly have seen their revenues and stock prices rise thanks to GLP-1 drugs. This success points to a ripe market for more M&A deals, especially around oral GLP-1 medicine.
Private equity firms are also gearing up to impact healthcare M&A trends with their considerable resources. They’re not just eyeing high-value buys but also hospitals in financial distress. Additionally, companies in digital health and telemedicine are becoming hot targets due to their market potential.
There’s a growing interest in consumer health products, motivated by changes in population demographics. Pharma giants might sell off less relevant parts of their business to focus on their main goals. Companies in research, development, and medical technology with solid financials are especially appealing for investments. This underlines the broad range of investment chances in healthcare.
Sector Focus: Energy and Infrastructure
The energy sector’s mergers and acquisitions (M&A) and infrastructure investments are about to boom in 2025. This is because of urgent climate goals and a rise in renewable energy projects. Many CEOs in the energy and resources sectors are very worried about climate change in the coming year. This concern is pushing lots of money into M&A activities, as well as new and existing projects.
The push for cleaner energy and sustainability is making deals in these sectors more important. Deals are expected to grow in both value and number by 2024, suggesting more big moves ahead. Solar energy and energy storage, in particular, are set to draw in lots of investors.
Many factors will shape the future of energy sector M&A. These include consolidation, government rules, ensuring supply, and fine-tuning portfolios. In 2023, the UK’s M&A activity in these sectors hit £18.2bn, the highest for any sector, showing strong investor trust. A notable deal was Harbour Energy’s $11.2bn (£9bn) acquisition of Wintershall Dea’s assets.
Even with economic challenges, environmental and social factors are still driving deals. Although deal values fell by 24% from 2022, the chance for more deals is still high. Companies are changing their plans and investing more in renewable energy. This change is leading to more M&A activities aimed at making energy use greener by 2050.
The UK needs £50bn each year to meet its net-zero targets, which is more than 2% of its GDP. This opens up huge opportunities for energy management and infrastructure investments. Currently, only 19% of UK companies have succeeded in reducing energy costs significantly. This situation presents a great chance for companies that offer digital and energy-saving solutions to help with a sustainable energy shift.
Prospects for IPOs in 2025
The future for IPOs in 2025 is a mix of hope and caution. Many things will influence how IPOs bounce back after a tough period. Global deals fell to US$2.5tn in 2023 from a high of more than US$5tn in 2021. This shows how hard the market has been hit. The London Stock Exchange (LSE) saw a big drop in IPOs in 2023. Listings went down by 40%, and companies raised just $1bn (£78.2mn), the smallest amount since 2009.
Despite this, there is hope for better days in the IPO market as things start to stabilize. The cost of getting capital has gone up. This means companies need smarter ways to raise funds. With credit markets opening but financing costs at their highest in ten years, companies must find strong strategies to overcome these challenges. The value of companies compared to their future earnings went up by 15-20% in 2023. This could mean a better environment for IPOs by 2025.
In the biopharma world, IPOs look promising for those with convincing clinical data to win over investors. Some companies might wait until 2025 to launch their IPOs because of the current unstable market and political issues. The consumer and healthcare sectors saw increases in deal starts by 27% and 12% respectively from October 2023 to March 2024. This shows growing investor interest in these fields.
The hope for 2025 in the IPO market is careful but positive. It looks especially good for sectors that are growing strong and doing well even when times are tough. Biopharma IPOs are expected to stand out. With strong clinical data, they can attract investors and deal with the market’s challenges next year.
Conclusion
In summing up the UK’s M&A scene for 2025, we see a scene full of both challenges and promises. The deal value took a dip to £109 billion in 2023, a 43% fall. Yet, the deal count was stable at 2,620. This shows a steady but careful vibe in the market. There’s a shift towards public deals and a keen interest in choosing quality assets for growth.
Looking ahead, the M&A outlook for 2024 looks cautiously hopeful. Key areas like energy, tech, and pharma are leading the way. The year’s start already hints at a bounce-back, with private equity firms playing a major role. Deals like Hewlett Packard’s big move to buy Juniper Networks for $14 billion highlight this. There’s also a lean towards innovative financing methods.
Digital changes, especially AI, are majorly tweaking how deals are done in tech. Lesser regulatory hurdles and a hunt for value are boosting the market. Sectors primed for growth, like AI, life sciences, and healthcare, will push deal numbers up. However, they’ll face more regulation on competition and ethical factors.
For 2025, UK M&A growth will depend on smart expansion and adjusting to new market and regulation changes. Issues like sustainability and ethics in business will play a bigger role. Companies must seek out industry-specific opportunities to thrive. Managing new regulations and economic shifts will be key. Industry experts from Deloitte and PwC predict these elements will shape a lively M&A scene in the next few years.
