UK deal value rises despite tough conditions

New data from the Office for National Statistics has revealed that UK M&A deal value increased during the fourth quarter of 2023, despite an incredibly challenging dealmaking environment in which volumes were highly constrained.

ONS figures showed that there were 367 domestic, inbound and outward M&A deals involving UK companies in Q4 2023, the lowest figure since the start of the COVID-19 pandemic and down from 400 in the previous quarter.

The volume of activity also fell throughout the quarter, with December 2023 seeing just 83 deals (the lowest total since 58 in May 2020), while that month also set a new post-COVID low for domestic deals, with just 30 in December 2023 compared to the previous low of 35 in May 2020. Overall, Q4 had the second lowest M&A volume seen in the UK over the past six years, only being outdone by Q2 2020, when the UK was still dealing with the initial impact of the COVID-19 pandemic.

However, the year also ended with significant optimism for an improvement during 2024, as inflation fell sharply and interest rates remained stable – with many predicting that falling inflation will lead to the Bank of England cutting interest rates this year.

This slight economic improvement was further boosted by the fact that, despite falling levels of activity, M&A value actually improved during the fourth quarter of last year, as the value of domestic, inbound and outward M&A all increased.

The value of domestic M&A rose from £2.5 billion in Q3 2023 to £2.7 billion, while the value of inbound M&A (acquisitions of UK businesses by foreign buyers) rose significantly from £5.3 billion to £8.6 billion and the value of outward M&A (UK buyers acquiring foreign companies) increased from £2.1 billion to £3.2 billion.

While M&A buyers in the UK continue to face tough market conditions, the increase in deal value suggests that M&A activity could be starting to move away from the low-value and distressed transactions that have largely defined dealmaking over the past two years.

Despite recognising that dealmakers were battling “difficult market conditions”, PwC UK’s Head of Deals Lucy Stapleton also stated that the UK was “in a much better place than we were a year ago”, as a result of falling inflation and steady interest rates.

She continued: “Improving economic conditions, pent up demand and the appetite we are seeing from businesses to do deals should see the market recover this year with the most robust areas of the market, underpinned by societal megatrends such as healthcare, AI and net zero driving activity.”

However, there is no question that the UK M&A market is still facing significant challenges and that the possibility of a genuine recovery in dealmaking during 2024 hinges on several factors, including continued economic improvement, geopolitical stability and greater private equity investment.

Houlihan Lokey’s Managing Director and Global Head of Technology Phil Adams said that the latest figures demonstrated that “macro-economic conditions remain relatively constrained”.

He added: “Despite private equity firms holding record levels of dry powder and facing mounting pressure to deploy capital, larger buyout transactions continue to be subdued, reflecting the lingering uncertainty prevailing in the market.”


Read more about how UK M&A may shape up in 2024:

UK M&A Outlook 2024

Could interest rate cut drive SME dealmaking?

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