M&A activity in the UK’s financial services sector fell by nine per cent last year, as dealmaking appetite in the industry fell sharply following the banking crisis in March. Despite a promising start to the year, the banking crisis led to a challenging economic climate and widespread investor caution.
This contributed to total deal volume falling from 301 in 2022 to 273 last year, according to a new analysis of financial services M&A from EY. Total disclosed deal value, meanwhile, fell to £12.1 billion, compared to £14.9 billion in 2022, which EY said was the lowest figure since 2014.
According to EY’s UK Financial Services Strategy and Transactions Leader Tom Groom, activity in the sector was also impacted later on in the year by “sustained high interest rates, recessionary concerns and growing geopolitical tensions”, which he said had driven “some firms to pause or even reconsider M&A plans.”
In terms of subsectors of the financial services industry, EY recorded a drop in UK banking deals from 71 in 2022 to 54 last year, despite deal value rising from £4.3 billion to £6.7 billion. In wealth and asset management, deal volume fell from 132 to 107 and deal value more than halved from £5.6 billion to £2.1 billion.
The insurance industry saw deals increase from 98 in 2022 to 112 in 2023, but deal value dropped from £5.1 billion to £3.3 billion. Acquisitions of UK targets by non-UK buyers fell from 65 in 2022 to 54 last year, with the value of inbound deals falling from £7.7 billion to £6.3 billion.
Acquisitions of overseas assets by UK buyers, meanwhile, dropped slightly from 69 in 2022 to 66 in 2023, but the value of outbound deals fell significantly from £3.2 billion to £1.7 billion.
Despite the decline in activity across the sector, Groom said that the outlook for 2024 was more positive. Overall, sentiment regarding financial services M&A at the start of last year was high and there continues to be strong dealmaking appetite in numerous areas of the market that could be unleashed should economic conditions continue to improve.
Groom stated: “The challenging macroeconomic climate impacted M&A activity in 2023. While many of the headwinds are still present this year interest rates are projected to fall, which should lift market confidence. As a result, we anticipate M&A activity to increase throughout 2024 as firms look at new ways to innovate and grow in this improved economic environment.”
Read more about financial services M&A in this insight from early 2023
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