Following a year which has seen private equity M&A activity slow down significantly (reflecting a broader drop in dealmaking), there are forecasts that activity could be set to pick up as inflation falls and pressure grows on private equity firms to both deploy funds and exit existing investments.
The decline in private equity M&A activity has been seen as a major factor in the overall drop in dealmaking so far this year, with many private equity firms pausing their activity amid economic uncertainty and the increased difficulty of securing debt financing for leveraged transactions.
According to new data from KPMG, private equity activity in Scotland fell by 25 per cent during the first half of 2023 compared to the corresponding period last year, with just 21 deals completed for an overall value of £2.26 billion. This was in line with a UK-wide decline in private equity transactions, with 609 completed during H1 2023, compared to 909 in H1 2022.
KPMG’s Head of Corporate Finance M&A for Scotland Graeme Williams said: “As we stepped into 2023, many were hopeful that the market would stabilise. However, it quickly became clear that rising prices for goods and services, along with higher interest rates, and uncertainty about world events, continued to erode confidence and impact deal volumes.”
However, there are growing signs that the economy is beginning to improve and that inflation is slowing, potentially leading to more favourable interest rates and prompting optimism that the M&A market could rebound over the coming months.
Graeme Williams continued: “While the number of private equity exits has remained low in the first half of the year, there’s growing pressure in this area. It’s only a matter of time until there’s an increase in exits.”
“Additionally, there’s a lot of available private equity funds that need to be invested in new opportunities sooner or later. Both factors could lead to a significant rise in mid-market private equity activity, given the right market conditions.”
“The foundation for making deals is already in place. As greater economic, political, and financial stability returns, it won’t be too long before the M&A market becomes active again.”
Read about recent UK M&A news:
“Expectation gaps” impacting M&A, but deal volume on the rise
M&A opportunities forecast to increase after slow H1
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