Lacklustre end to 2023 for the UK M&A sector

Today’s ONS quarterly M&A statistics reveal that mergers and acquisitions (M&A) in the UK in Q4 (October to December) 2023, which involved inward, outward and domestic activity, was down on the previous quarter. 

Whilst deal activity remains subdued, it is expected to pick up later in 2024, boosted by anticipated interest rate cuts in the summer and reduced inflation which will improve the confidence of financial projections for both sellers and buyers. These improved conditions will play out in most markets, including the UK, US and across Europe, so buyer and sellers in those territories are expected to become increasingly active. 

The total combined number of cross-border and domestic M&A transactions involving a change in majority share ownership was 367 during Q4, a decrease from 400 the previous quarter. The value of domestic M&A (UK companies acquiring other UK companies) was £2.7bn in Q4 2023, £0.2bn higher than the previous quarter, but £1.2bn lower than Q4 2022.

The value of inward M&A (foreign companies acquiring UK companies) in Q4 2023 was £8.6bn, up £3.3bn on the previous quarter, and £2.8bn higher than Q4 2022. The total value of outward M&A (UK companies acquiring foreign companies) in Q4 2023 was £3.2bn, £1.1bn higher than Q3 2023 but £6.9bn lower than Q4 2022.

James Wild, partner and head of M&A at RSM UK, said: ‘It was a lacklustre end to the year for the M&A sector in 2023, but this lull in activity is expected to make a recovery in late 2024. With lower inflation, interest rates stabilising and consumer confidence improving later this year, this paints a more positive picture for the deal market. The possibility of an interest rate cut in early summer will help to crystalise more deals, so we expect to see deal volumes pick up again by the second half of this year.

‘The revival of the deal market may be partly boosted by public to private deals, as private equity (PE) houses look to capitalise on the lower prices of UK listed companies. The industrials and business services sectors continue to be the most buoyant, as weak consumer spending means investors want to put their money into those that service businesses for a more reliable, steady stream of income.

‘The timeline for deals to complete continues to drag on, likely to be contributing to lower deal volumes, as sellers run into challenges over trading, funding, and buyers’ demands for a proven track record before finalising a deal. However, encouragingly, the issue of the disconnect between buyers’ and sellers’ expectations appears to be lessening, as both parties become more realistic over what they expect to achieve.’

Jasper Van Heesch, director and private equity senior analyst at RSM UK, added: ‘After a relatively quiet year for PE investment and exit activity, there’s pent up demand to deploy capital and make exits. Private equity fundraising came under pressure in 2023 and generally continues to be, and while exits remain low, there is still substantial capital available, including around £60-70bn in dry powder based in Europe and aimed at mid market companies. The improved economic conditions will help unlock that, but companies should not expect an ‘tsunami’ of activity as interest rates will remain high on a historical basis and economic growth will be sluggish for the rest of 2024 which will temper enthusiasm’.