What will drive the UK M&A market in 2024? How can mid-market businesses find success amid changing valuations and deal structures?
In 2024, UK mid-market businesses face the chance of great gains. This is due to strong valuations and more deals being done. With solid corporate finances and $2.49 trillion ready for investment, the year looks bright for those thinking of selling. Founders are looking to sell for various reasons. These include passing on their business, getting growth capital, or reducing risks.
Jacques Callaghan of HSAC sees a tricky M&A market ahead. He says sellers must tailor their sales strategies to get the best value. David Plowman talks about the importance of being confident in forecasts to price deals right. The effort to find synergies and boost profits is pushing deals, despite higher wages.
Some investors, like Inflexion, focus on minority investments to help businesses grow. They don’t take full control. David Whileman notes how crucial it is for investment funds to be smart about adding value in today’s challenging market.
The outlook for the UK M&A market in 2024 is carefully upbeat. Private equity is getting back into the game. Sectors like energy, tech, and pharma are especially active. Strategic thinking and the ability to move quickly will mark success in this changing landscape.
Current Landscape of UK Mergers & Acquisitions
M&A insights for the UK in 2023 show a tough environment. Deal activity fell by 18% from 2022, and much lower than 2021. 2023’s total deal value dramatically decreased to £83bn, a big fall from £269bn in 2021 and £149bn in 2022. Despite this, the UK seems to be slowly getting back on its feet as 2024 begins.
Mergers and acquisitions are picking up, with an eye on valuable assets. This suggests a move towards strategic mergers for high-value chances. Private Equity was critical, making up 42% of the deal volume and 55% of the deal value in 2023. A PwC UK CEO Survey found that 20% of CEOs worry their company won’t last 10 years without change, pushing M&A as a key strategy for future sustainability.
Most senior executives see deal-making as crucial for keeping up with the market. Yet, getting the funds is getting tougher and pricier, with more reliance on private credit. PE investors are carefully choosing where to put their money, focusing on areas like TMT (Technology, Media, Telecommunications), energy, pharma, and healthcare, which saw much activity.
The performance across sectors varied greatly. While TMT, energy, and healthcare boomed, consumer markets didn’t stir much. An interesting development is the rise in P2P (Public to Private) deals, especially notable in 2023’s UK takeovers. Four big deals, each over £1 billion, were all P2P, showing a change in the UK M&A scene.
Economic Factors Driving M&A Activities
In recent years, the UK has seen a lot of M&A (mergers and acquisitions) in various fields. This increase is mostly due to strong economic conditions. A growing GDP and positive feelings from consumers make the market look good for M&A.
Low interest rates have also played a part. They make it cheaper to borrow money, encouraging more companies to buy others.
At the start of the COVID-19 pandemic, M&A activities slowed down. But soon, digital growth led to more chances in tech, online shopping, and healthcare. Economic recovery, technology progress, and supportive laws keep pushing UK M&A activities forward.
Still, things like possible tax changes and worldwide issues could affect M&A in the UK. According to PwC’s 27th UK CEO Survey, one in five CEOs think their business won’t survive another ten years without change. Also, more than half of the top bosses see M&A as key to stay up to date.
In 2023, the number of deals in the UK was 18% less than in 2022, and much lower than 2021. The total value of these deals in 2023 dropped to £83bn, down from £269bn in 2021 and £149bn in 2022. But the private sector’s role is still big, making up 42% of all deals and 55% in terms of money. This strong comeback shows the private sector is ready to invest more, meaning we can expect more deals.
Private equity mainly focused on TMT, energy, pharma, and healthcare in 2023. Economic drivers and private equity’s strategy underline a careful choice in buying and investing. This approach is boosting the UK’s M&A activity.
Sector-Specific Trends in M&A
The UK’s M&A scene in 2023 saw an 18% decrease in deals compared to 2022. The overall value dropped significantly to £83bn from £269bn in 2021. However, technology, energy, and pharmaceuticals showed strong growth, driving the market forward.
Technology M&A trends are leading the way. For example, Cisco’s planned US$28bn purchase of Splunk is the biggest tech deal of 2023. It highlights the high value placed on tech businesses. AI-driven M&A is changing how deals are done, fitting into a global trend of embracing new technologies in business strategies. Private equity houses have also shown a lot of interest in the TMT sectors this year, boosting their importance.
The pharmaceutical sector’s M&A growth in 2023 shows its strong position. An increase in deals was seen compared to 2022, driven by a demand for healthcare innovation. A notable 42% of deals involved private equity, making up 55% of the deal value. This shows the sector’s appeal to investors.
Banking and healthcare M&A are recovering more slowly. Yet, 56% of senior executives believe M&A is key to keeping up with market trends. There is a growing focus on ESG factors in these sectors, marking a significant industry shift.
The energy sector saw triple the number of megadeals in 2023 than the year before. This is in line with a move towards more sustainable energy. Understanding these trends is crucial for stakeholders looking to make the most of the UK M&A market.
Private Equity’s Role in the M&A Landscape
In 2023, the UK’s M&A scene saw a big splash from private equity firms. They were behind 42% of all deals and drove 55% of the deal value. It shows how big their impact is. They focussed on areas like TMT, energy, pharma, and healthcare. Their investment strategies were sharp and in line with market trends.
Economic trends such as stable interest rates and dropping inflation shaped PE investments. Although deals dropped by 18% over 2022, firms invested wisely. About 56% of top execs think deals are key to keep up with the market.
21% of UK CEOs worry about their firms’ future without change. M&A plays a key part in shaping what’s next. PE activity dipped last year, expecting more deal completions by 2025 especially in the UK and Europe.
The decline in big bank activities gave alternative lenders a chance to shine. This helped SMEs find more funding options. Private equity adapts to new trends to fuel growth. Despite ups and downs, PE keeps the UK market lively by finding the right investments and dealing with economic challenges.
Key Insights for Mid-Market Businesses
In the UK, 2023 was tough for mid-market companies. There were 18% fewer deals than in 2022. The total deal value dropped to £83bn. This is a lot less than in the past.
However, Private Equity (PE) is still very interested. PE was behind 42% of all deals by volume and 55% by value. These numbers show that mid-market M&A is still attractive, especially to PE firms.
There’s a need for custom-made sales processes in this unstable market. Many leaders (56%) say transactions keep them competitive. Thus, mid-market companies should be ready for important, changing deals.
Also, 21% of CEOs worry about their companies lasting. This makes it vital for them to seriously consider mergers and acquisitions.
By focusing on sectors like TMT, energy, pharma, and healthcare, growth is possible. These are areas PE is keen on. The market is moving towards investments that are both equitable and focus on long-term sustainability.
Also, deals that don’t involve taking full control are getting more popular. They attract specialist investors while allowing companies to keep growing. Getting these deals right calls for careful planning and a strong strategy for selling assets.
Technology, Media, Telecoms (TMT), and Healthcare are very active for M&A. Construction and Retail are facing challenges due to how people spend money. Still, some PE investors see opportunities in these tough times.
Some niches, like field management software, are emerging as new hotspots. Over the last two years, five big deals happened. Also, industries like advanced manufacturing and ESG consulting are seeing more international deals. This makes the mid-market scene richer and offers many chances for growth.
The Role of Regulatory and Financing Strategies
In recent years, the UK’s M&A scene has changed a lot. We see more deals in tech, finance, healthcare, and consumer goods. This change comes from good economic growth and people feeling confident about spending. Because of this, companies look to new ways to fund deals, moving away from old methods.
With confidence high, businesses are keen to make big moves. Low interest rates help too, as borrowing costs less.
But, entering today’s M&A world has its tricky parts. Antitrust rules, for example, can be tough. Even so, they make the market stable and predictable, which is good for M&A activity. Yet, changes in taxes, laws, and global events can still add uncertainty.
The COVID-19 pandemic slowed things down at first. But as things got better, deals started happening again. The push into digital has opened up chances, especially in tech, e-commerce, and healthcare. Now, making deals demands even better skills due to global and economic risks.
In the UK, the rules of public M&A are the same for local and foreign companies, with some exceptions. In 2022, big deals, over £1 billion, mostly used schemes to get done. Out of 46 firm offers, 38 used this approach. The deals varied, showing the many ways to get an M&A done.
Opportunities and Threats in the M&A Environment
The UK’s mergers and acquisitions scene is a blend of highs and lows. Deal volume has fallen by 18%, with the total value at £83bn for 2023. Yet, the technology, media, and telecom (TMT) sectors still provide strong M&A chances. Private equity firms, taking up 42% of deals by volume and 55% by value, show their eagerness to stay ahead.
But we can’t ignore the threats facing UK M&A. The challenges of inflation and higher interest rates mean deals take longer to close. Issues like economic uncertainty and strict regulations also make things tough. Technology drives growth, especially with the need for better computing and GenAI. Meanwhile, health and energy sectors attract private equity with their focused investment plans.
Despite the challenges, strategic buys are vital in this tricky UK M&A scene. Growth varies by sector, with TMT, energy, pharma, and healthcare showing promise, unlike the quieter consumer markets. Notably, 56% of senior executives view deals as key to keeping up with change. This highlights M&A’s strategic value.
Increased deal times, due to economic challenges, urge buyers towards imaginative deal structures. Think earn-outs, escrow accounts, and special insurance. Regulatory hurdles also demand strong negotiation skills to succeed in UK M&A.
Businesses that are quick and clever stand a better chance at making the most of M&A opportunities. Even with the decline in 2023, the prospects for 2024 suggest a hopeful and complex future.
Optimising UK Mergers & Acquisitions Insights
To make the most of M&A in the UK, companies should look ahead and consider upcoming trends. There’s a boom in merger activities, leading to lots of cash on hand. However, they must face challenges like global uncertainty, the fast pace of the digital world, cyber threats, and tax changes.
Companies need different strategies to stay ahead. They should invest more in technology and smartly use their insurance funds. Good planning can make M&A smoother and give companies an edge. Adding environmental, social, and governance factors to their strategy could lead to better results.
Getting help from experts like Aon for specific tasks can make a big difference. Their support ensures lower risks and easier mergers. The 2024 Global Claims Study shows managing risks well leads to better investment returns.
The success of mergers varies by industry, such as tech, healthcare, and finance. According to Bain & Company, the best acquirers stay ahead by being strategic and forward-thinking in this complex field.
Conclusion
The UK M&A outlook for 2024 is filled with hope and smart thinking. As the market evolves, companies find both chances and challenges. Last year, firm offers went up by 17%, from 48 to 56. This shows the market is moving and might grow more.
But, the average deal size went down by 36%, from £861 million to £309 million. This points to smaller, but more thoughtful deals happening.
Even with smaller deals, the M&A scene is buzzing. Financial backers are showing more interest, especially in big transactions. In 2023, all deals over £1 billion were private to public. The tech sector, making up nearly 20% of deals, is driving the direction of M&A actions.
Most UK public takeovers still happen through schemes, though slightly less than before. The dip was from 79.2% in 2022 to 76.8% in 2023.
As we look at 2024, a steady economy is expected. The Bank of England has kept interest rates at 5.25%. But, a possible tax hike could push business owners to sell faster. This might make the market busier.
Sellers are getting creative with deals to match future risks. They’re using things like earn-outs and warranty insurance for safer, more inventive deals.
So, the UK M&A market looks set for big changes in 2024. With better economic conditions and smart moves, companies can grow. They’re set to make the most of new trends and strengthen their spot in the market.
