With increasing pressures for companies to maintain a competitive advantage, there is a growing recognition of the transformative impact M&A can have, compared with the slower burn of organic growth.
According to B P Collins' award winning corporate and commercial team, M&A activity seems likely to be driven for the rest of the year by the ongoing need for larger businesses to adapt to rapidly changing industries, embrace new technologies (such as AI) to keep up with (or ahead of) the competition, scale up to achieve economies and give security and greater scope for taking opportunities, expand into international markets and enhance their ESG credentials.
As larger companies are not impervious to the economic instability of late, there is an M&A strategy trend around focusing on making multiple smaller acquisitions, rather than larger, more expensive takeovers. On the other side, smaller business owners may be experiencing a static market with slow organic growth, and contemplating selling due to fatigue from tough conditions and still not recovering from the pandemic's impact.
Sector specific trends
If we look at specific sectors, M&A activity is set to grow in:
Healthcare and Pharmaceuticals: M&A activity in healthcare is powered by the need for scale, innovation, and diversification. Pharmaceutical companies will be pursuing acquisitions to enhance their R&D capabilities and expand their product pipelines, especially in areas like biotechnology and personalised medicine.
Technology: Larger firms are looking to acquire innovative startups to bolster their technological capabilities and maintain a competitive advantage, so software, cybersecurity, and fintech companies will be appealing targets.
Renewable energy: As the UK strives to achieve net-zero targets by 2050, the renewable energy sector is set to see a huge level of consolidation. Investments in renewable technologies are expected to increase, with larger firms acquiring smaller, innovative companies to enhance their portfolios. A good example of this trend was the acquisition of Andigestion by Seven Trent Green Power from our client Summerleaze, which recently won 'Deal of the Year' at the Thames Valley Deals Awards.
UK remains attractive for M&A activity
This appetite for M&A is good news for the UK market, which was recently ranked as the most attractive destination in Europe for domestic and inbound M&A activity. The country's robust legal framework, highly skilled workers, and position as a global financial centre make it an appealing target for international buyers. Deals are further encouraged by lower inflation, rates normalising, GDP growth stabilising and rising consumer confidence.
Private equity firms
Private equity firms also continue to harbour substantial funds and are showing a keen interest in businesses that have effectively managed to weather the recent market turmoil and sectors with stable cash flows and growth potential. The competitive landscape for high-quality assets means valuations may remain high, but the abundance of capital will drive deal-making activity.
Venture Capital (VC) firms are also expected to continue their investment in innovative startups. The inclination of VC-backed companies to making strategic acquisitions to accelerate growth and expand market presence is likely to continue.
Regulatory environment
Although there is scrutiny on deals which may slow down the approval processes on some transactions, the UK remains committed to being an attractive destination for foreign investment, and regulatory bodies are balancing security and competition concerns with the need to nurture a thriving business environment.
In summary, although it's a complex picture where high valuations and regulatory hurdles exist, the remainder of 2024 is looking positive overall with M&A activity likely to be driven by ESG factors, cross-border activity and technological innovation.
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