M&A deal volumes take a dive amid current economic uncertainty

New figures published today by the Office of National Statistics have revealed a fall in inward, outward and domestic deal volumes in Q2 2022. 

Inward deal volumes fell to 117 in Q2 2022 from 173 in Q1; outward deal volumes fell to 58 in Q2 from 80 in the previous quarter; and domestic deal volumes were down to 158 in Q2 from 196 in Q1.

Despite fewer deals being completed, foreign companies were still attracted to buying UK businesses as inward M&A values increased to £16.1bn in Q2, from £15.6bn the previous quarter. UK businesses were also on the acquisition trail as outward M&A values were up to £4.5bn in Q2 from £2.8bn in Q1, while domestic deal values fell to £2.9bn in Q2, from £3.8bn in Q1.

A total of 72 deals were completed in June 2022, down from 148 in March 2022 – the lowest level since over two years ago in May 2020 where only 58 deals were completed.

James Wild, partner and head of M&A at RSM UK, said: ‘The exceptionally high M&A activity over the last two years appears to be levelling off to more sustainable levels. Current turbulence in the form of cost pressures, supply chain issues and the energy crisis, have all created tougher conditions to complete deals. That said, deals are still happening, and the appetite from private equity and corporates remains strong.

‘The decline in deal numbers has been driven by the large corporate market, with valuations and bank appetite at artificially high levels during the pandemic. Transactions in this arena are now being impacted by a tightening of appetite from banks as they focus on recession-proof characteristics when lending.

‘In times of financial uncertainty, it’s common for an increase in corporate carveouts, where businesses choose to focus on their core business and divest their non-core divisions to strengthen their balance sheets. This creates more opportunities for deals to be done.

‘Going forward, with a new prime minister in place, and as the government seeks to combat the energy crisis and surging inflation to restore confidence, it’s hoped that deal volumes will stabilise and return to historic levels.’