Foreign takeovers once again driving UK deals

2024 has largely been a year of normalisation in the UK M&A market, following the near total halt that COVID brought to dealmaking in 2020, the subsequent burst of pent-up activity in 2021 and the dip that followed during 2022 and 2023 in the wake of geopolitical turmoil, the war in Ukraine and a widespread economic downturn.

Uncertainty is still prominent, of course, and 2024 hardly brought with it a wave of dealmaking, but activity has returned to more typical levels and some of the more serious headwinds diminished significantly.

Crucially, greater global geopolitical and economic certainty is driving an increase in inbound M&A investment into the UK and this should continue to generate considerable amounts of activity well into 2025.

Inbound acquisitions, particularly from US buyers, have actually been one aspect of the M&A market that has remained resilient over recent years, even as other types of activity were hampered by various headwinds.

However, much of this activity was driven by the low valuations of UK targets, which made them highly attractive to well-capitalised US buyers. While this trend shows signs of continuing, especially as the dollar hits new highs, there are also indications that the value of inbound deals targeting UK companies is increasing – suggesting that overseas buyers are increasingly targeting UK assets for more strategic reasons.

Following comprehensive results in global elections during 2024 (particularly in the UK and US), dealmakers are widely predicted to begin operating with a greater sense of certainty and stability, suggesting that high-value, strategic inbound M&A should continue to be a major driver of activity in the UK.

Inbound activity over recent years
In 2021, the UK’s M&A market rebounded from the devastating impact of the COVID-19 with a huge surge in dealmaking. A vital factor in this was a significant influx in investment from overseas buyers.

In the 2021 report from the Mergers and Acquisitions Research Centre (MARC) at Bayes Business School, which ranks the leading global M&A markets, the UK increased its ranking from ninth to third – overtaking the Netherlands and Germany to establish itself as Europe’s most attractive destination for inbound and domestic activity, behind only the USA (1st) and Singapore (2nd) globally.

Much of this can, of course, be attributed to pent-up dealmaking appetite in the wake of the initial lockdown of the pandemic, but Bayes Business School also cited the UK’s response to the pandemic – the introduction of the furlough scheme and the speed of the vaccination rollout – as key factors in boosting its attractiveness.

The next year (in the 2022 edition of the report), despite soaring inflation and interest rates and rising geopolitical uncertainty, the UK retained its position as the top M&A market in Europe, while overtaking Singapore to rank as the second most attractive market worldwide behind the US.

The UK’s geographic distance from the war in Ukraine, compared to other key markets within the EU, was arguably a key factor in the improved ranking, with Dr Appadu saying that it was “notable that it has retained this position for a second year despite the issues associated with Brexit.”

Not mentioned in the report, however, but arguably the crucial factor in the UK’s continued prominence as a dealmaking hub, were plummeting valuations among UK businesses, ongoing high levels of corporate financial distress and the weakness of the pound in comparison to other global currencies – especially the dollar and the euro.

The fact that UK assets are so highly sought after internationally is, of course, of great credit to UK owners and entrepreneurs, but this influx of overseas investment naturally raises concerns about the low valuations being attached to such high-quality and/or high potential businesses, as well as the weaker position of potential UK buyers in comparison.

In 2023, despite deepening political and economic uncertainty, the UK remained the highest-placed European nation, ranking third globally – providing further evidence of the continuing attractiveness of UK assets, the resilience of inbound investment and, potentially, stubbornly low valuations for UK companies.

Developments during 2024
This sense of uncertainty surrounding the ongoing attractiveness of UK assets grew during the first half of 2024. Economic factors such as high interest rates and inflation continued to have an impact, while the announcement of a general election added to the political disquiet that already surrounded the US election in November.

This confluence of factors likely contributed to the value of inbound M&A targeting UK companies declining relatively sharply from £10.1 billion in Q4 2023 to £5.7 billion in Q1 2024, recovering slightly to £6.7 billion in Q2 during the run up to the general election.

However, according to LSEG, M&A deals involving a UK-based target accounted for 6 per cent of the global total in the first half of the year (compared to 4 per cent for the same period in 2023), while the value of deals in which a UK company was the target stood at £102.4 billion – up by 54 per cent compared to the first nine months of 2023.

Crucially, LSEG found that 72 per cent of the UK’s total deal value involved bids in which the buyer was from overseas. This was the highest share recorded for the period in three years, following a 79 per cent surge in inbound investment.

Following the general election in July, the renewed sense of political certainty, combined with improved economic conditions, helped to propel inbound activity even further, with the Office for National Statistics (ONS) recording inbound deal value of £7.8 billion during Q3.

This was a year-on-year increase of £3 billion, as well as an increase of more than £1 billion compared to Q2 2024. This came despite a decrease in the volume of inbound M&A activity between Q2 and Q3.

2024 continued the trend of US buyers targeting UK assets, with the UK by far the most targeted European country for US buyers and US buyers by far the most active overseas group in the UK market, with CMS recording 266 acquisitions of UK companies involving a US-headquartered buyer during the first half of 2024.

Overall, the UK remained a hotbed for global M&A, with a year-end report from LSEG finding that, once again the UK was the third most-targeted country for M&A during 2024, behind only the USA and China. This also meant the UK remained the most active hub in Europe.

According to the report, 51 per cent of UK target deals involved an overseas buyer, with inbound dealmaking increasing by 21 per cent compared to 2023.

What has driven inbound activity?

Valuations still a factor
While the low valuations of UK companies was potentially the major driver of inbound activity during 2022 and into 2023, this trend seemed to be less prominent during 2024, with the UK experiencing improved economic stability.

However, this is not to say that it is no longer a factor. In several industries, UK companies continue to be perceived as undervalued in comparison to peers in regions such as the USA and Europe, as well as in comparison to historical levels.

Political uncertainties, such as the ongoing effect of Brexit and the instability that preceded the summer general election, have been seen as contributing to depressed valuations, alongside economic challenges such as high inflation.

Certain sectors have also been impacted by specific issues, such as rising input costs in manufacturing, weak consumer spending in consumer goods and retail and declining revenues from traditional formats in media and entertainment.

While less widespread than in, say, 2022, these issues have still led to depressed valuations for many companies – helping to make UK assets more attractive to buyers who may also be bolstered by the relative strength of their currencies.

Commenting on the ONS figures for inbound activity in Q3 2024, Spencer Wes Corporate and M&A partner James Klein specifically cited the attractive pricing of UK assets as continuing to be a major factor, saying: “It is unsurprising that certain M&A activity levels have continued over the Summer. This has been a continuing trend as overseas buyers – particularly US buyers – continue to target lower priced or more attractively-priced UK assets.”

On average, UK valuations are not necessarily weak, but any growth has been sluggish. According to BDO’s Private Company Price Index (PCPI) for Q3, trade valuations for UK private companies stood an average EV/EBITDA multiple of 9.8x.

While this was up slightly from 9.7x in Q2, it remained level with the figures seen during Q3 2023. Furthermore, it remains not insignificantly lower than the figures seen prior to the COVID-19 pandemic, as well as the post-pandemic boom in 2021 (for example, the PCPI average stood at 10.6x EV/EBITDA in Q3 2021).

Far stronger, however, are valuations for private equity deals. BDO’s corresponding index for private equity valuations, the Price Equity Price Index (PCPI), stood at 12.2x EV/EBITDA in Q3 2024, up from 11.9x in Q2 and 10.7x in Q3 2023.

Private equity activity on the rise
Private equity M&A activity has remained sluggish over recent years, as investors have largely opted to wait for various crises and headwinds, all while amassing record breaking levels of uninvested capital.

During 2024, while there wasn’t a genuine resurgence in private equity activity, there were signs of improving conditions, leading to broad expectations that greater political and economic stability will help to drive further private equity investment during 2025.

Much of the UK’s private equity activity during 2024 was driven by overseas buyers, with KPMG reporting that 42 per cent of activity during the first half of the year was driven by international buyers. Again, US-based investors were key to this trend, accounting for approximately half of inbound activity, according to KPMG.

Despite its numerous economic challenges, the UK has remained a major hub for private equity activity within Europe. According to a half-year report from the Centre for Private Equity and MBO Research (CMBOR) based at Nottingham University Business School, the UK remained the largest and most active market for PE activity during the first half of 2024.

CMBOR found that the UK saw 95 buyouts with a total value of €16.1 billion during the first half of 2024. By comparison, Germany, which ranked second, saw 48 deals with a total valuation of €6.3 billion, while France saw the third highest volume of 45 deals, but with a value of just €1.7 billion.

Professor Kevin Amess, Director of CMBOR at Nottingham University Business School, commented: "The UK is routinely the biggest and most active European private equity market, even when facing political upheaval, and has consolidated its position with this latest strong set of numbers.”

“In France, by contrast, political uncertainty often delays M&A activity, so its own snap general election may act as a further drag on French buyout values in what has already been a quiet year.”

The report found that much of Europe’s activity was driven by the technology, media and telecoms (TMT) sector and the healthcare industry – two industries in which the UK is considered a global leader.

Part of this influx of private equity activity has been the low valuations attached to many UK-listed companies, which has driven a resurgence in public-to-private takeovers among private equity buyers. A Deutsche Numis study of private equity firms found that 26 per cent viewed UK public assets as their main focus last year, with 65 per cent saying they had completed a P2P transaction in 2024, up from 51 per cent in 2023.

Stability and global prominence breeds confidence
In spite of widespread economic and political issues over recent years, the UK undoubtedly offers an underlying stability that has remained attractive to overseas buyers and investors.

The country’s position as a link between the US and Europe, its status as a global financial hub, the worldwide commonality of the English language and a tax regime that remains, largely, highly favourable to investment have all contributed to the UK remaining a hub of dealmaking.

The UK is also a leader in several sectors that are at the forefront of global investment, from fintech and life sciences, to wealth management and renewable energy, meaning it will be seen as a safer investment opportunity for the many buyers and investors seeking to enter these markets.

In CMS’s analysis of European M&A trends for 2025, the UK and Ireland’s technology, media and telecoms (TMT) sector (ranked as the most active sector in Europe for US buyers during H1 2024) was cited as a particularly strong attraction for investing in the UK.

During 2024, it seems that (overall) this sense of stability improved somewhat, with economic conditions easing, greater political certainty following the election and, crucially, a growing sense that the UK’s regulatory and legal environment is becoming more settled.

This is an area that has proven tricky since the UK left the European Union, as businesses and investors have been forced to adjust to new trade agreements and shifting regulations, while many have also been impacted by supply chain disruption and increasing costs.

However, since Brexit, the UK has sought to bolster trade with non-EU countries, particularly the US, helping to drive a major increase in opportunities for inbound M&A activity and investment.

According to a recent report from HCR Law, a more settled post-Brexit regulatory environment is helping to drive cross-border activity into the UK, something that looks set to increase over the coming years.

"Recent regulatory clarity around Brexit has encouraged US firms to invest more heavily in the UK, viewing it as a gateway to the European and global markets. Technology and life sciences are key sectors where US-UK M&A activity is expected to thrive.”

“The UK’s stable legal system, coupled with a favourable corporate tax regime, makes it an attractive destination for US investors. At the same time, UK firms are also looking across the Atlantic for strategic partnerships and acquisitions. Cross-border collaboration between tech firms and financial service providers in areas like fintech, cybersecurity, and artificial intelligence is expected to increase, supported by governmental efforts to align transatlantic data and digital trade policies.”

Furthermore, with economic stability improving (albeit shakily) and a more EU-sympathetic government now in place, it seems likely that confidence in the strength of UK assets will continue to increase among international investors, both from the US and EU.

Gateway to international expansion for EU and US buyers
As mentioned in the HCR Law analysis, the UK also serves as an ideal gateway into European markets for overseas investors, particularly those from the US, and this has helped to drive inbound M&A investment into a number of sectors.

In the insurance industry, for example, the UK has long been the most active M&A market within Europe and, increasingly, this is in large part down to the fact that US insurance firms view it as the ideal launching pad for international expansion.

The UK insurance broker market is strong and, despite years of consolidation, remains relatively fragmented. Combined with the fact that many UK insurance firms continue to be undervalued in comparison to US peers, these factors have prompted several US insurance firms to enter Europe via the UK over recent years.

One US firm that has acquired a UK company is MarshBerry, which acquired UK broker iMas Corporate Finance in October 2023. MarshBerry CEO John Wepler said that, while the iMas acquisition had seen MarshBerry build on its existing EU presence, for many other brokers the UK would be “the most logical launching point” for an international expansion plan.

Discussing the potential for more US brokers to enter the UK market, Wepler stated: “There are roughly 20 insurance distributors in the US that are over $1bn in revenue, the majority of which do not have a presence in Europe. That is generally the threshold when a US broker starts to look for an international presence and the UK is often the most logical launching point. Many without a UK presence are rolling out plans to establish a European beachhead in London, as it is the Wall Street of insurance.”

One particularly active US-based insurance buyer is Brown and Brown, which acquired Global Risk Partners in 2022, rebranding it as Brown and Brown Europe. Since then, Brown and Brown Europe has completed more than 10 acquisitions.

Stephen Ross, the company’s Head of M&A, pointed out that several US-based businesses are already making acquisitions in the UK and stated that this might prompt further US companies to seek to keep pace by also entering the UK market.

Conversely, but going by the same logic, the UK also represents one of the first ports of call for EU-based firms seeking to expand geographically, resulting in a significant amount of activity from continental buyers.

In the waste industry for example, French-headquartered Suez has completed a number of acquisitions in the UK since 2023 – with acquisitions of UK companies such as London-based lithium-ion battery processor F&R Cawley Limited spearheading its aim of reaching 40 per cent turnover from international markets by 2027.

What does 2025 hold?
Looking at conditions heading into 2025, the broad expectation seems to be that inbound M&A activity will continue to increase, with overseas buyers, particularly from the US, continuing to be attracted to the stability and familiarity that the UK offers.

Cultural alignment was mentioned in CMS’s European M&A Outlook for 2025 as a major reason behind the UK and Ireland being listed as the top M&A destination in Europe for 2025.

According to CMS, close to a third of US buyers who ranked the UK and Ireland as their top investment destination mentioned “cultural alignment” as a key aspect in deciding where to invest internationally.

James Klein also pointed to the UK’s strength in key industries such as life sciences, renewables, fintech and technology, as an ongoing boost for inbound investment. He added that the increasing number of UK companies seeking international strategic partnerships – particularly in the US – could also generate further US-UK deal activity.

Overall, Klein asserted, “the rise in overseas investment is set to continue into next year and will undoubtedly increase”.

A major factor being cited in predictions for an ongoing increase in inbound investment is the political stability that has been brought about by conclusive general election results in the US and UK.

Charles Hall, head of research at Peel Hunt, expressed such a view in a recent analysis, stating: “There has been a quiet period for M&A after a spate of activity in the first half of 2024. This has been driven by uncertainty on the direction of interest rates, the US election and the UK Budget.”

“Looking forward, now that there is more clarity around the political backdrop and in the context of continued challenges faced by UK capital markets, the stage is set for a sustained increase in UK M&A activity.”

“We expect deal activity to accelerate in 2025 as the political activity normalises and acquirers can assess the impact of tax and tariff changes.”

“In addition, a lowering interest environment should increase both affordability and scale of funding. We see potential for heightened activity from both corporate and private equity acquirers.”

Hall continued that “low valuations, a stable political environment and more predictable tax position” would continue to make UK assets attractive and also asserted that private equity could be expected to return during 2025.

RSM UK’s Head of M&A James Wild concurred regarding the benefit of greater political stability, saying that elections had delivered “much-needed clarity for businesses” that could “only be a positive for the deals market”.

Conversely, some observers have argued that the likely policies of the incoming Trump administration could have a significant impact on US-led M&A activity in the UK – something that would naturally have major ramifications for inbound activity. As well as considerable concern over the impact that Trump’s plans for tariffs on foreign imports could have on the UK economy, there have also been suggestions that M&A could be hit.

In CMS’s 2025 outlook report (conducted prior to the US election), 59 per cent of respondents stated that they believed that US M&A deals targeting European assets would decrease should Trump be elected, citing his “more isolationist approach” - including tariffs.

Kate Darracott of CMS Scotland commented: “The data shows a perception that a Trump victory would impact cross-border M&A, although high levels of uncertainty mirror how the election process has developed to date. Trump’s campaign is focused inward on the US and dealmakers have (some) benefit of hindsight on his foreign policies. ”

The potential impact of the Trump administration is likely the biggest obstacle to inbound M&A investment continuing to increase during 2025, with most of the other underlying conditions seemingly conducive to ongoing growth in dealmaking.

Whether or not Trump’s policies facilitate or constrict US investment in European assets, one thing most forecasters seem to agree on is that uncertainty over the potential impact is more damaging, with Kate Darracott opining that “uncertainty is detrimental to markets and clear policies should help bolster activity.”

In light of this, it seems fair to assume that there is some trepidation over how the new White House regime will affect US investment overseas. However, once Trump settles in to the White House, some much needed clarity should hopefully be delivered (although, of course, nothing is guaranteed with Trump).

Should dealmakers gain more clarity and confidence in targeting cross-border deals in the UK, then all the other conditions currently in place suggest that UK assets will continue to be among the most attractive in the world to international investors.

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