UK M&A activity in 2022 cools from record high

UK M&A activity in 2022 slowed down from its record-setting 2021 activity to pre-pandemic levels, with economic headwinds affecting the volume of deals completed in 2022, particularly in the second half of the year, according to PwC’s latest Global M&A Trends report.

In total, the UK saw 4,232 deals across 2022, compared to 5,033 for the previous year, a 16% decline.

PwC added this was broadly consistent with global deal volumes which declined by 17% over the same period. Further analysis found that deal volume for the first half of the year was higher than the second half, with 2,394 UK deals completed in H1 compared to 1,838 in H2.

There was a total of £93.5bn worth of UK deals in H1 of 2022 compared with £51.4bn in H2 bringing the total deal value for the year to £144.9bn. However, total deal value for the year was down 56% compared to the record £332.1bn in 2021.

Lucy Stapleton, head of deals at PwC UK, said: “UK M&A activity in 2022 saw contrasting performance across the two halves of the year. In the first six months we saw some of the buoyancy of the second half of 2021 spill over, but as the year developed we saw the political situation exacerbate the volatility in the macroeconomic environment that led to surging inflation, rising interest rates and overall, lots of uncertainty in the market.

“That led to a rise in the cost of debt, a growing gap in valuations and in the second half in particular we saw the big ticket transactions calm down while the mid market held up.”

She added: “While deal volume slowed down last year, sentiment around M&A is still cautiously optimistic for the year ahead. In our latest CEO Survey 63% of UK company chiefs said they do not plan on delaying deals in the coming year and we are seeing companies are still very much on the lookout for opportunities to transact to transform their business.

“While cash rich corporates may still be able to move forward with deals, market volatility and uncertainty, coupled with some well-trailed failed syndications, mean that the debt markets remain extremely difficult for acquisition financing. Until this reverses, there is little incentive for anyone to be first to test the market.”

She concluded: “Private equity is still sitting on a lot of dry powder. The mix of increased certainty and valuation recalibration, coupled with signs that inflation may have peaked and that interest rates could start to stabilise or rise in much smaller increments, mean this could be the catalyst for greater certainty in the deals market and for the big ticket activity in the UK to kickstart.”