New analysis has revealed that M&A remains a strategic priority for CEOs in the UK, despite prevailing economic headwinds that have led to a slowdown in UK dealmaking activity so far this year. Investments in technology and private capital are forecast to contribute to a future recovery in dealmaking.
The latest data from the ONS revealed that cross-border and domestic M&A activity in the UK fell from 508 transactions in Q1 2023 to 450 in Q2 2023, a year-on-year decline from 526 in Q2 2022. The value of domestic UK M&A, meanwhile, fell from £2.7 billion during Q1 to £2.4 billion in Q2.
UK M&A has been hit by a wide array of adverse economic conditions, including soaring interest rates and high inflation, while businesses have been impacted by rising prices and a decline in consumer confidence.
However, according to a new analysis from EY, M&A is still seen as a strategic priority for company CEOs, helping to fuel hopes that dealmaking figures will recover over coming quarters. The ONS’s figures did show a slight increase in outward acquisitions involving UK companies compared to Q1, with EY’s UK&I Managing Partner for Strategy and Transactions Silvia Rindone commenting that data points “to further strengthening through 2023 and into 2024.”
In EY’s latest CEO Outlook Pulse, 98 per cent of UK CEOs said that they expected to actively pursue a strategic transaction over the next year. 63 per cent of this number were planning M&A activity, 69 per cent were seeking to form strategic partnerships or joint ventures and 59 per cent were planning divestments.
Silvia Rindone said: “Despite economic headwinds, the latest research from EY shows that M&A activity remains a strategic priority for UK CEOs particularly when it comes to technology innovation.”
“With new technologies emerging and maturing rapidly, we’re likely to see an acceleration in investment in digital assets – such as AI capabilities – leading to more transactions as companies look to either reinforce their market position or gain a competitive advantage.”
EY data showed that 58 per cent of CEOs were planning significant capital investments over the coming year, while (reflecting the growing importance of new technologies), 35 per cent said they had already integrated AI-driven changes to products or services into their capital allocation process.
Rindone concluded: “Looking ahead, the fundamental deal drivers that supported the M&A market over the past few years remain intact and we expect private capital, which been resilient through many previous economic cycles, to lead the recovery followed by corporates.”
“As the deals market picks up, we expect to see increasing interest in acquiring UK assets, particularly those in the life sciences and technology sectors, given the UK’s reputation in Europe as a leading destination for AI start-ups.”
Find out more about recent UK M&A trends:
UK remains top destination in Europe for M&A investment
“Expectation gaps” impacting M&A, but deal volume on the rise
Update December 2023: Logistics M&A grows despite surge in insolvencies
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