Half of UK organisations using transactions to keep up with change

The UK M&A market looks set to pick up in 2024, with firms increasingly looking beyond organic growth to transform their operations. More than half of UK business leaders are considering transactions to keep pace with changes and challenges in their markets, according to a new study from PwC.

A growing body of evidence suggests that the UK M&A market is poised to turn a corner. Following 18 months of lacklustre business, multiple studies suggest that 2024 will once again see a boom of deals across the national market – as firms look to boost their results through acquisition campaigns.

Indeed, some research asserts that the change is already occurring. According to WTW’s quarterly deals performance benchmark, global deal activity increased in the third quarter of 2023, with volume rising by 16%. The news comes at a time when businesses remain relatively positive about their prospects thanks in part to AI investments could boost profitability – and further papers have since suggested that 2024 looks much brighter for deal prospects as a result.

Some cautionary voices have pointed out that deals in 2024 will still have to deal with many of the headwinds that have hobbled the market throughout 2023. In particular, uncertainty still clouds the global supply chain, with rising trade tensions between the US and China, the war in Ukraine, cyber-crime, and heightened costs still making the transport of goods and services more difficult than throughout the last decade. However, a new study suggests that these challenges may actually boost demand in some ways.

The report from PwC has found that a 56% majority of firms in the UK view transactions – in the form of M&A, divestments, joint ventures or minority stakes – as the best way to keep up with the changing business landscape and secure their long-term viability. Around 63% of senior leaders said they would conduct coordinated, strategic change within the next three years. As they are aware that this change will need to be quick and responsive to other changes, organic development is no longer sufficient – and so leaders largely believe transactions must play an instrumental role in enabling transformation at pace.

Roberta Carter, UK value creation leader at PwC, commented, “In a market where competitiveness relies on agility, businesses must make transactions an integral part of their transformation strategy. They need to adapt at speed, but organic growth often loses momentum when set against the demands of day to day business operations. To create the most value, leaders must align transactions with a bold vision. Deals that support the business’s ability to continuously adapt are more likely to succeed. By carrying out transactions and transformation simultaneously, leaders can establish a virtuous cycle whereby both activities unlock more value.”

The stakes are high for many organisations as they seek to create value and keep up with the rapid advancements in technology such as Generative AI (GenAI) while making progress on Net Zero ambitions. A 35% portion of executives said they believe their business won’t be economically viable if they don’t make significant changes within the decade. But, polling 300 UK senior executives with company revenues of $100 million upwards across six different industries, the study also found that firms planned to use transactions to proactively drive transformation and create value. 

Creating value

According to the survey, 60% of firms are likely to use transactions to help them build a workforce with future-ready skills – avoiding complex recruitment programmes and training, by securing pre-built teams able of making the most of new technological opportunities. Subsequently, a further 44% acknowledge that deals enable companies to acquire capabilities and skills. 

It therefore follows that leaders view transactions as a core part of accelerating the integration of technology and technology-enabled processes to their operations. Seven out of 10 respondents added they viewed transactions to achieve their technology related goals for their businesses to that end.

However, while the sentiment towards transactions is largely positive, the scale of planned transactions vary. With inflation still relatively high, 31% said they expected to limit their spending to a number of small-scale transactions. A smaller 26% said their approach would be a combination of larger and smaller transactions, and just 15% said they would look to a number of larger scale deals.

However, continuing a trend from last year, some industries have a more gung-ho attitude. Both the utilities and health and pharma sectors saw 62% say they would carry out one large-scale deal, a number of large-scale deals, or a mix or large and small deals – as they continue to respond to heightened demand, making the realisation of a return on investments quicker.

Lucy Stapleton, head of deals at PwC UK, added, “There are signs that conditions in the deals market are beginning to stabilise particularly in sectors aligned with the megatrends such as energy transition, healthcare and technology where companies are making transformative transactions. As conditions continue to improve and confidence grows, we expect to see a growing number of companies using transactions as a way to transform their businesses.”