UK M&A activity in 2023 falls by almost a fifth

The UK’s merger and acquisition activity plummeted over 2023, sinking to its lowest rate since the start of the pandemic. However, a positive close to the year means optimism is growing for a return to form in 2024.

The start of every calendar year sees an outpouring of analysis from consulting firms, examining the performance of the merger and acquisitions market over the last 12 months. As noted by both KPMG’s look at the UK’s private equity investment scene of 2023, and WTW’s global research into deals worth more than $100 million, the period was bad for deals – seeing the number of transactions collapse for a second consecutive year.

However, both reports also closed on a positive note: that deals seemed to be rebounding ahead of 2024. Building on that, Big Four firm PwC has also offered its thoughts on the UK’s merger and acquisition market – and has suggested that value and volume may be on the cusp of a recovery.

First, though, the bad news. In total, the UK saw 3,628 deals across 2023, compared to 4,362 the previous year, a 17% decline. That was almost triple the rate of decline in global deals volumes of 6% over the same period. At the same time, total deal value in 2023 was down 41% compared to almost £150 billion worth of deals seen in 2022.

Further analysis shows a drop in deal volume during the second half of 2023 (H2 2023) of almost 600 deals compared to the first half of the year (H1 2023). The volume of activity seen in H2 2023 is the second lowest in the last five years, next to the first half of 2020 which was affected by a slump in dealmaking early in the pandemic.

With that said, PwC’s analysis also found that dry powder in the private equity sector – combined with stabilising economic conditions – could be about to see all that change. Pointing to the emergence of what could be a key new trend, PwC suggested that

while the majority of UK deals in 2023 were led by corporates, the number of deals involving private equity reached its highest level at 42%, up 5% from 2022, and an increase of almost 14% since 2018.

Lucy Stapleton, head of deals at PwC UK, commented, “While the macroeconomic environment is still challenging, overall, we are in a much better place than we were a year ago with inflation steadily falling and while interest rates are still higher than recent times, they have stabilised. There is still an appetite for deals - our recent CEO Survey shows more than half of UK CEOs expect to make at least one major acquisition in the next three years and that the UK is the top investment target for US CEOs, while also becoming an increasingly popular place to invest for Chinese businesses.”

Deals may also be driven by hype around new technologies such as generative AI. Indeed, certain industries may be pushed into more purchases in the coming year, if they intend to make the most of the potential opportunities. Industry analysis of UK deal activity in 2023 showed that the technology, media and telecommunications (TMT) sector saw the most activity for 2023 – at 955 deals – accounting for just over a quarter of total output for the year. Industrial manufacturing and automotive followed with 899 deals, and also saw the most deal activity for the second half of the year, with 390 deals announced, meaning there may be more growth in the sector to come.

Tim Allen, deals industries and international leader at PwC UK, added, “We are seeing cautious optimism about the deal environment with dealmakers showing increasing confidence after the recent economic shocks that have affected the M&A market. Companies’ needing to add new technology capabilities, such as Generative AI, are driving deal volumes in the TMT sector whilst energy transition across the board is supporting activity in the Energy, Utilities and Resources sector. The healthcare industry has also proven resilient. With more than half of UK organisations saying they view transactions as the best way to keep up with market changes, we expect to see companies making strategic deals to keep their businesses viable.”