With Labour winning a strong majority in this month's general election, interest rates stabilising and inflation cooling, the outlook for M&A activity in the U.K. is cautiously optimistic.
Barring any significant geopolitical disruption, it looks like deal activity, both in volume and value, will slowly improve in the second half of 2024. This follows a period of subdued dealmaking in 2023 that has persisted into this year.
Despite some views on the potential tax rates changes being unfavourable to entrepreneurs, the Labour majority has already instilled greater confidence in the U.K. economy, as evidenced by the rally in stock prices and the pound edging up in the aftermath of the election result. This election has also coincided with improvement in market sentiment as well as rising consumer confidence.
Lots of positive factors will contribute to renewed deals activity. Private equity (PE) houses are still sitting on record levels of dry powder, waiting to deploy in new opportunities beyond the buy-and-build strategies that have dominated the market over the past year.
With U.K. interest rates stabilising and probably reducing again, confidence has returned to the debt markets through increased liquidity. U.K. companies also continue to be “good value” acquisitions for international trade buyers, particularly U.S. growth-focused acquirors.
In fact, more than 44% of inbound deals by volume in the U.K. in the 1H were performed by U.S. buyers1. This includes the largest deal of the year so far, the 5.8 billion-pounds takeover of U.K. packaging firm DS Smith by U.S. rival International Papers.
Whilst both owner managers and PE have been waiting for an improvement in the economy, we are seeing many companies starting to prep for sale over the summer, boosting expectations for a much busier Q4 and start to 2025 in terms of deals activity.
We expect to see a higher level of completions across all sectors and particularly in business services, tech and healthcare. Many companies have used the last 18 months to refocus and streamline their businesses and as a result, we will see an increased number of attractive assets coming into the market.
Footnote
1. https://ionanalytics.com/insights/mergermarket/alive-and-kicking-emea-ma-makes-speedy-recovery-dealspeak-emea/
Originally Published 18 July 2024
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