Under pressure from political instability, high inflation, declining consumer trust and rising borrowing costs, UK dealmaking saw volumes and values decline by 21% and 55% respectively in 2023. Businesses may be exercising caution in certain deals and investments but are taking steps to secure longer-term growth at the same time.
Interest rate cuts could help ease financing costs and incentivize financial sponsors to return to M&A markets in the second half of 2024, with transactions that had been put on pause likely to reappear (such as KKR’s offer for Smart Metering Systems or Brookfield’s bid for Network International). With more stable economic forecasts and rising valuations set to close gaps between buyer and seller expectations, the UK M&A landscape should continue to improve in 2024.
PwC predicts the economy is expected to experience significant slowdown during the first half of 2024; however, recovery should begin by summer time according to accountancy firm PwC. With energy prices declining and inflation falling faster than anticipated by EY ITEM Club’s forecast and measures designed to spur household spending such as an additional Bank Holiday in May and additional government support via Energy Price Guarantee set to take effect – conditions should start softening accordingly.
As noted above, it’s important to recognize that the UK economy remains far from returning to pre-pandemic levels and thus remains behind its G7 counterparts.
Strong sterling has also served to discourage overseas investment from companies with significant exposure to eurozone countries; as it softens, investors should find it increasingly attractive – helping drive export growth overseas.
M&A activity will likely remain hindered by regulatory challenges related to data protection and implementation of the General Data Protection Regulation; however, as time progresses the market should become more familiar with these new rules.
But nevertheless, Britain is an exceptional hub of innovation and technological development and this will continue to present opportunities for M&A across various sectors. M&A continues to evolve; digital transformation remains key driver of future growth while data analytics are revolutionising how businesses identify, assess and act upon business opportunities.
Given these trends, we anticipate most M&A activity to involve bolt-on acquisitions rather than strategic purchases. Furthermore, we anticipate an uptick in M&A activity in real estate sectors with emphasis on technology and environmental, social, and governance (ESG) issues.
