UK M&A activity drops to 21% in H1

M&A activity in the UK for the first half of 2023 (H1’23) has fallen in comparison with the same period last year, according to PwC’s latest Global M&A Industry Trends report.

The report stated that due to macroeconomic headwinds and tight financing markets that continue to affect the volume of deals completed has resulted in the drop of M&A activity in the UK.

In total, the UK saw 1,902 deals in H1’23, compared with 2,408 over the same period last year, a 21% decline.

While year-on-year volume is down, deal activity is still at or above 2018-2019 levels, pre-covid.

The analysis also highlighted that there was a total of £42.8bn worth of UK deals in H1’23 compared with £95bn in H1’22 a 55% drop in value, with fewer larger deals and a decline in average deal size.

Additionally, the number of deals greater than £1bn in value dropped from 19 with a combined value of £46.7bn in H1’22 to seven deals with a combined value of £15.4bn in H1’23.

However, the report saw that mid-market deals activity has remained more resilient, “as smaller deals are proving easier to get done in today’s difficult financing and regulatory environment”.

A breakdown of UK deal activity by industry for the first half of the year showed technology, media and telecommunications (TMT) saw the most M&A activity (511), accounting for just over a quarter (27%) of the total for H1’23 followed by industrial, manufacturing and automotive (466) and consumer markets (393).

The financial services industry saw deals with the highest value for the first half of the year, making up almost a quarter of total value with £10.2bn worth of transactions. TMT followed closely behind with £10.1bn, then energy, utilities and resources with £8.1bn.

Moreover, of the 1,902 deals in the first half of the year 39% involved Private Equity, a slight increase compared to the same period last year of 37%. The analysis also showed that of the £42.8bn in deal values generated in H1’23, Private Equity accounted for 54%, slightly down from 55% for the first half of 2022.

Lucy Stapleton, head of deals at PwC UK, said: “The UK experienced a tough transactions market during the first half of the year as conditions to complete deals, particularly high value ones remained volatile. Gaps in valuations between buyers and sellers continued to feed uncertainty and high interest rates made financing deals difficult.

“Despite this, activity in H1’23 has been resilient and while in terms of volume we are not seeing the record levels compared to the same period last year, they are still roughly around pre-pandemic levels. In spite of the macroeconomic backdrop dealmakers remain optimistic and there is pent up demand amongst dealmakers who remain poised to deploy capital when market conditions begin to stabilise and valuation gaps narrow.”

She added: “The mid-market is continuing to hold up as cash-rich corporations look for strategic opportunities and we may see more bolt-on transactions as well as sell-sides as private equity and corporates start to prepare to exit businesses.”