UK M&A Outlook 2024

2023 was not exactly a bumper year for M&A, with the headwinds that defined much of 2022 continuing and, in many cases, worsening. This has resulted in another year of slow dealmaking across most sectors (with some notable exceptions), in comparison to the heights reached post-COVID in 2021.

However, there were indications in the last quarter that the M&A market was beginning to stabilise, amidst faint signs of economic improvement as interest rate rises stopped and inflation began to fall.

While there remains a significant degree of trepidation in the face of economic headwinds, widespread geopolitical uncertainty and the prospect of a general election, most forecasts for M&A in 2024 are sounding an optimistic note.

If there is to be a recovery in dealmaking during 2024, it is likely to be driven by small and mid-sized deals. Many owners of smaller businesses are faced with static markets and slow organic growth prospects. On the other side, there are those who have had enough and are contemplating an exit after several years of tough trading conditions.

Other factors also point to larger buyers also potentially favouring smaller deals in the event of a resurgence in M&A activity: economic uncertainty has made larger acquisitions less popular, meaning that key buyers such as PE firms (who continue to sit on huge levels of dry powder) may look at smaller deals that pose less risk and could deliver a greater reward. These are not typically direct, but secondary acquisitions, carried out by their first tier portfolio companies.

Small deals have helped prop up M&A in difficult year
Experian MarketIQ’s recently released year-to-date review found that UK M&A volume stood at just under 4,500 deals during the first three quarters of the year – a decline of 19 per cent compared to the same period of 2022 – while deal value stood at £135 billion, down 29 per cent.

Experian MarketIQ Research Manager Jane Turner commented: “The slowdown in UK and Irish M&A that took hold in the second half of 2022 has persisted deep into 2023, as companies adjust to headwinds driven by inflation and escalating interest rates inflate the cost of financing deals.”

However, the report also noted that small deals had provided “a silver lining”, with Experian noting that the market for small businesses remained “brisk”, with 948 deals during the first three quarters. According to Experian, the market for small deals remained resilient amid strong interest from both private equity and corporate buyers, who Jane Turner said had proven “keen to deploy mounting cash reserves in this area.”

While smaller deals did demonstrate some decline from 2022, down 14 per cent in terms of both value and volume, this was significantly more resilient than other areas, with mid-market deals decreasing 30 per cent in volume and 35 per cent in value.

This dip in dealmaking has not been confined to the UK - globally, M&A deal value is down 17 per cent on 2022 (Europe down 28 per cent), as total transactions dipped under $3tn for the first time in 10 years.

However the UK has fared worse than average, according to a report from LSEG Deals Intelligence. New data shows that the value of M&A activity with any UK involvement shrank by 33% in 2023 to £208bn, the lowest total since 2009.

Lucille Jones, Senior Manager at LSEG noted, “On a positive note, the year ended more strongly than it began, and with inflation coming down and rates normalising, it could give CEOs and boards a little more confidence with which to plan their moves in 2024.”

2024 – The outlook for M&A
The best way to describe the outlook for M&A as we head towards 2024 is... complicated. Crucially, inflationary pressures still persist and there is a huge degree of underlying uncertainty about overall economic strength, making many potential buyers cautious.

Taking a broad look at the M&A market, CMS European M&A Outlook 2024 (which surveys corporates and private equity firms across Europe, the Americas and APAC) found that 43 per cent of these high-profile dealmakers expect M&A activity in Europe to drop during 2024 – with respondents citing inflationary pressures (40 per cent) and economic weakness (38 per cent).

However, the survey also showed that 35 per cent expect an increase in M&A activity, while, among private equity respondents, 46 per cent expected a higher level of dealmaking. CMS speculated that, with a low valuation environment amid economic turbulence, and PE firms continuing to sit on huge levels of dry powder (approx $3.7tn worldwide), many private equity firms may be ready to return to the marketplace in earnest.

Also reflecting a notable degree of optimism was the fact that CMS’s respondents were significantly more upbeat about the prospects for dealmaking in the UK and Ireland than elsewhere – with 47 per cent expecting activity in the UK and Ireland to see the highest growth of any region over the next year (up from sixth place in 2022) - with respondents citing the strong technology base and expertise in the UK and Ireland.

The report places the UK and Ireland firmly at the forefront of any recovery in dealmaking during 2024, with CMS UK’s Rob Willis commenting: “With the UK and Ireland providing a home to such a large number of international private and listed businesses, and both markets having a longstanding reputation of being a relatively easy place to transact, we would expect assets in the UK and Ireland to provide a reliable and familiar re-entry point for M&A stakeholders around the world as M&A conditions improve globally.”

Despite the many problems experienced by the UK, this reflects an ongoing appreciation among international buyers, with the UK recently being ranked as the most attractive destination in Europe for domestic and inbound M&A activity for the second year running. This was demonstrated yet further in the CMS report, with the UK and Ireland being named the top destination for foreign direct investment (FDI) in 2024 (20 per cent).

CMS quotes a Managing Director at a Chinese private equity firm as saying: “I feel that there will be good dealmaking choices in the UK & Ireland. The economy is strong, even if there were struggles for a while after the pandemic. The regulations are not tough for foreign investors. Instead of looking for opportunities in North America where the regulations are stricter, we can invest in the UK & Ireland.”

SMEs targeting deals in difficult growth environment
As we’ve outlined in many insights over the past 18 months or so, organic growth is something that is increasingly difficult for companies to secure when faced with high inflation, high interest rates, soaring costs and low consumer confidence.

Furthermore, there is a growing recognition among many companies that organic growth – even if it can be attained – is no longer sufficient to keep pace with the rate of change that many industries are experiencing amidst factors such as rapid technological development and the drive to Net Zero.

As a result, M&A is perhaps the most effective, and certainly the quickest, method by which companies can grow and remain competitive – something that is reflected in the fact that, despite severe economic headwinds – a large number of dynamic small and medium-sized business owners are targeting acquisitions.

A recent survey from M&A advisory firm Marktlink, which has a UK base in Manchester, polled 1,066 SME owners from across the UK, Netherlands, Denmark, Belgium and Nordics and showed a considerable degree of M&A appetite among UK owners in particular.

47 per cent of UK SME entrepreneurs who responded to the poll said that they had considered an acquisition over the past year – significantly higher than 39 per cent among their European counterparts – and 64 per cent of that number said that they were planning at least one acquisition over the coming five years.

According to Marktlink Managing Partner Jonny Parkinson, UK SME owners " are now beginning to see some light on the horizon” as the economy shows early signs of stabilising following close to two years of turbulence.

Parkinson continued that acquisitive sentiment was high, partly due to SME owners recognising “the opportunities to consolidate and acquire companies that have retained good performance to grow market share.” He added that a key factor would be the fact that private equity firms continue to sit on significant funds and are showing "strong interest in companies that have been able to successfully navigate the recent market turbulence.”

While many SMEs will undoubtedly have extremely low levels of capital with which to fund acquisitions and may need to think creatively in order to bankroll potential acquisitions – given the clamour there is likely to be to attract private equity funding and the increasingly stringent conditions being adopted by other traditional lenders, such as banks – it is clear that many owners recognise the transformative impact that acquisition can have and will be eagerly on the lookout for M&A opportunities during 2024.


Industry spotlight – A year of consolidation for logistics?
Over the past few years, logistics has presented an interesting case study in how companies have responded to challenges such as rising inflation and interest rates, economic turbulence, supply chain disruption and skills shortages.

Despite being one of the sectors worst affected by such issues, M&A activity in the industry has remained relatively robust, with many owners viewing deals as the best way to develop resilience by adding new technologies, building scale and expanding into new sectors and strategically advantageous geographic areas.

Recently, we discussed how M&A activity in the sector rose to a two-year high during the third quarter of the year, while, at the same time, insolvency rates in one of the industry’s key sub-sectors – haulage – has skyrocketed.

With M&A sentiment resurgent and levels of both distress and insolvency seemingly increasing, there have been forecasts that 2024 could see considerable consolidation within logistics, particularly among smaller operators who are more vulnerable to challenging trading conditions. Some industry experts are predicting a big HGV driver shortage, with half a million Driver Qualification Cards due to expire before the end of 2024 - although mitigated to some extent by a government initiative to increase driver training. Those companies that fail to take advantage of AI - i.e. in back-office functions, self-driving forklifts, pick & load machines and other robots - will be natural targets for acquirers.

Quoted in a recent report from industry publication The Loadstar, an unnamed senior figure at a freight forwarding business said that next year “will be the year of consolidation”, due to SMEs in the industry seeking to sell and potential buyers having significant funds at their disposal.

Compared to the previous three years, the source said, SME valuations are good, meaning that owners eyeing the exit door may be able to maximise their returns. Meanwhile, they added, companies that performed well over recent years have managed to amass “war chests” for M&A activity, while there are also a number of potential buyers backed by private equity or venture capital funds.

This sentiment echoed the opinion of BDO M&A Partner Jason Whitworth, who said in the firm’s recent analysis of logistics sector M&A that activity was being boosted by venture capital funds targeting tech-enabled companies with smart supply chain management capabilities, international buyers and growing levels of distress.

According to BDO’s UK Logistics Confidence 2023, deals during 2023 tended to be smaller in scale, reflecting challenges in getting deals over the line and caution in committing to bigger deals due to uncertainty over the valuation of future earnings.

While the year to come may see a greater number of larger transactions, in the event of an economic recovery, smaller deals look set to continue to play a key role in what should be a major year for logistics M&A. With distress levels remaining high, many SMEs in the logistics market will be under pressure and may look to sell, while others may be able to pounce on opportunistic deals and innovative, tech-enabled disruptors may become targets for wealthier PE or VC-backed firms.

Larger firms targeting smaller acquisitions
`Larger firms are also under pressure to adapt to changing industries, to integrate new technologies, to improve the skills of their workforce, to grow scale, to expand geographically and to boost their ESG credentials.

Given the scale of these pressures, businesses are seeking to grow rapidly, meaning that many are turning to acquisitions, rather than more time-consuming acquisitive growth, with trends such as acqui-hiring (a practice through which businesses make acquisitions in order to strengthen their workforce) set to come to the fore.

However, larger companies aren’t invulnerable to economic headwinds and this is leading to many acquisitive firms shifting their M&A strategies to focus on making multiple smaller acquisitions, rather than a few larger, more costly takeovers.

A recent PwC study polled 300 senior executives at UK companies with revenues of $100 million or higher across six industries. The poll found that 56 per cent viewed M&A deals, joint ventures, divestments and minority stakes as the best way to adapt to their changing industries, with 60 per cent of those firms planning to use acquisitions to add “future-ready” skills to their workforce and around 70 per cent saying they would use deals to add new technologies or technology-enabled processes.

However, perhaps the key finding of the survey was that many companies were focusing on smaller transactions, in the face of factors such as ongoing high inflation. 31 per cent of respondents said that they planned to limit their transactions to a number of small-scale deals, while 26 per cent said they would target a mix of larger and smaller transactions. Just 15 per cent, meanwhile, said that they would target a number of larger deals.

With private equity firms seemingly more willing to deploy their large cash reserves and larger businesses targeting smaller acquisitions in their buy and build growth strategies, SMEs with high growth potential may have a broader range of exit options or greater opportunities to attract investment for their own growth plans.


Industry spotlight – IT owners prepare to invest
As demonstrated by the PwC report, business owners view M&A as the best way to adapt, add skills, add new technologies and improve their workforce. Given the time pressure that businesses seemingly face to make changes, it’s likely that M&A will be seen in a similar way by owners at smaller businesses – reflected by the acquisitive temperament reported in the Marktlink survey.

One industry in which SME owners are showing particular optimism and a keener willingness to invest than counterparts in many other industries is IT. According to research from Three Business, UK SMEs are expecting, on average, to grow around 14 per cent next year and are preparing to invest a total of £17 billion in their businesses, with IT firms demonstrating particular optimism.

Three Business research found that IT firms have been more successful at building resilience to the macroeconomic headwinds affecting UK SMEs across most sectors, with the report finding they had undertaken strategy re-evaluation and improved their flexibility in the wake of the COVID-19 pandemic.

The report found that 83 per cent of IT firms were optimistic about 2024, a significant improvement on sentiment at the start of 2023, and that owners were targeting investments in marketing, the adoption of digital technologies such as AI, staff development and customer service.

Three Business Managing Director Mike Tomlinson said: “Small and medium businesses are the lifeblood of the UK economy. It’s great to see the strong sense of optimism and learned resilience that’s coming through among all SME leaders, in particular in the IT sector. These leaders have shown that they have risk-proofed their businesses and are now ready to invest in their future, grow and take on the challenges of the next 12 months.”

With such strong optimism within the industry and widespread plans to invest in order to tap into the growth opportunities that owners clearly see on the market, IT SMEs could be among the small businesses most involved in M&A activity during 2024, particularly if they can attract the financial backing required for ambitious deals.

Many SME owners eyeing the exit door
Despite the optimism demonstrated by strong M&A appetite among some owners at small and medium-sized firms, there is also no doubting that smaller businesses have been disproportionately impacted by the economic issues affecting the UK economy and that this has followed what has already been a difficult few years for many firms.

Owner fatigue has been a major factor in the UK’s soaring insolvency rates during 2023. During the second quarter of the year, the UK saw 6,342 insolvencies (the highest figure since Q2 2009 – in the midst of the financial crisis), with 5,240 of these insolvencies being creditors’ voluntary liquidations in which owners closed their businesses of their own accord, without being issued winding-up petitions.

Many of these owners have had to face the harsh reality that nobody is going to buy a business where the net earnings are small and/or there is a lack of a quality second-tier management in place.

Another demonstration of owner fatigue, and one that is particularly relevant for the M&A outlook, is the number of SME owners planning on exiting their business or who have said that they have considered selling as a result of ongoing headwinds. Selling under such pressure is not going to produce much value for the owner, and often reflects inadequate exit planning. The scent of desperation is not lost on investors, who will seek to capitalise on their stronger hand in any negotiation process.

While demonstrating the optimism of many SME owners, the Marktlink survey also found that 31 per cent of owners said they had considered selling their business over the past year in order to secure its future.

Marktlink’s Jonny Parkinson said: “We are seeing owners who are now considering a sale due to the fatigue caused by the recent trading challenges, or where they recognise the value of de-risking and taking some cash off the table should things not improve as expected. The opportunity to financially secure a personal future and a stronger future for the business through the sale to a financial or strategic partner is increasingly appealing to a lot of owners.”

Similarly, a Handeslbanken Wealth & Asset Management report from earlier in 2023 found that one in five SME owners said they were planning to sell all or part of their business within the next two years. While some had positive reasons for considering a disposal, such as unlocking liquidity for a future venture or retirement (which may, still, be partly down to fatigue), others cited challenges such as rising costs and profitability issues. 11 per cent, meanwhile, said they expected to downsize their company, with 18 per cent of that figure citing issues relating to their company’s performance.

Should the M&A market improve as widely expected during 2024, many of these owners (and perhaps even more who haven’t voiced a willingness to exit or would only consider it in the event of an economic recovery) may choose to act on their exit plans.

The flipside of this, of course, is the considerable number of attractive SME businesses that will come to market in 2024. This means that many acquisitive businesses (SMEs or otherwise) could be presented with the opportunity to acquire struggling, yet potentially profitable, businesses at just the right time: prior to an economic recovery.

One interesting trend we have found here in the UK is a rise in alternative financing methods such as seller financing, earn outs, and retained equity, often at rates better than those offered by banks. This trend is echoed in the United States (as mentioned in the IBBA International Business Brokers Association Q3 report), and leads us to predict that deals are likely to become more complex.

Could the general election spur more exits?
General elections are often a driver for M&A activity, as company owners look ahead to the economic policies and changes that might occur, most notably when a change in government is likely.

Sir Keir Starmer’s Labour party have been polling well ahead of the incumbent Conservative party for well over a year now, with most forecasters anticipating that the 2024 General Election will result in a Labour government.

One of the key economic issues that owners have had to consider over recent years is a potential increase in Capital Gains Tax (CGT). The prospect of a Labour government could lead to concerns that CGT may be increased, which would negatively impact the value that business owners could derive from disposals.

As was seen ahead of the reduction of the lifetime limit on Entrepreneurs Relief from £10 million to £1 million, a potential CGT increase could see a number of businesses being brought to market as owners seek to dispose of their businesses before any legislation comes into effect.

Certainly, a Starmer government would be far less likely to introduce the kinds of radical tax reforms that might have been brought in by his predecessor, Jeremy Corbyn, but given the state of the UK economy, it is possible that an array of tax increases will be considered by the next government.

Currently, the situation is one of uncertainty, with no date set for the election (which could even take place as late as January 2025) and campaigning yet to begin in earnest. No manifestos have yet been drawn up and neither of the main parties has set out a solid economic plan for if they win the election, with many forecasting that clear indications will only begin to emerge around the Spring 2024 Budget.

The good news for business owners is that Shadow Chancellor Rachel Reeves (who, barring a major reshuffle before the election, seems likely to be the next chancellor) said in August 2023 that a Labour government would not consider CGT increases.

However, as mentioned, a Labour government would also need to generate funds for any significant spending plans, meaning that, until a solid economic policy is in place, no potential tax increases can be fully ruled out. Indeed, earlier this year, Deputy Leader Angela Rayner said Labour would likely introduce several tax increases and there have been comments about potential increases to the likes of inheritance and dividend tax.

While it is too early to say whether there is likely to be a CGT increase next year, even this uncertainty may be enough for some business owners to bring forward their exit plans, just to make sure that they lock in a more favourable rate and a more profitable sale.


It appears unlikely that 2024 will see a return to the levels of M&A seen during 2021, but economic conditions appear to be improving somewhat, which may see a degree of confidence return among dealmakers, potentially boosted by growing levels of activity among private equity and venture capital investors.

There are also other factors that could boost dealmaking by pushing owners towards the exit door, whether political uncertainty, ongoing financial distress and rising insolvencies or growing fatigue amongst owners across numerous sectors.

Most importantly, there appears to be a growing recognition of the transformative impact that M&A can have for companies looking to adapt to changing industries and secure quick, sustainable growth, including among SME owners.

If owners can get the financing required to make acquisitions, then 2024 should see the beginning of a concerted recovery in dealmaking levels and SMEs will play a key role in this.

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