The macroeconomic environment in the UK has presented challenges for dealmaking in the region.
But more strategic moves from companies navigating the mergers-and-acquisitions (M&A) market could keep organisations competitive as uncertainty prevails.
UK M&A activity in 2023 fell below the levels seen the previous year, a new PwC report said. Nonetheless, as economic conditions ease, confidence is expected to return to the market.
In total, the UK saw 3,628 deals across 2023, compared with 4,362 the previous year — a 17% decline. The volume of activity seen in the second half of 2023 is the second lowest in the last five years, next to the first half of 2020, which was affected by a slump in dealmaking early in the pandemic.
Despite pitfalls, conditions are expected to stabilise as inflation falls, PwC’s UK M&A Industry Trends 2024 report said, with less volatility making it easier for dealmakers to price deals and plan ahead.
However, economic uncertainty remains as inflation and interest rates are still historically high, consumer spending is depressed, high debt levels mean high interest costs, and companies continue to juggle other pressing priorities.
This is a complex picture, the trends report noted, and there is a pressing need for many companies to transform, combined with the significant amount of funds built up by private equity, which has become the dominant source of deals, accounting for 42% of all transactions in 2023 by volume and 55% in terms of value.
“Preparation is everything in this market, but with the purchaser/seller expectations gap narrowing, there will be significant opportunities ahead for those that have done the groundwork,” the report said. “With a strong focus on strategy and value creation, a carefully thought through transaction could set an organisation on the path to a successful future.”
An improved outlook globally
PwC expects global markets to embark on a new upward trajectory, with a steady increase in activity as the year progresses, according to its Global M&A Industry Trends report, as a “flurry of deals” in the past few months suggests that this rise in dealmaking may already have started in some sectors.
Sectors that have started to recover include energy, utilities, and resources; technology; and the pharmaceutical industry, the global report said. For others, including the financial services sector, M&A is likely to remain challenging this year, but the need for financial institutions to transform should give dealmakers greater optimism.
According to PwC, there are four aspects paramount for strategic dealmaking this year:
Utilise artificial intelligence (AI) for quicker transactions. “We anticipate AI may soon provide the ability to accelerate dealmaking preparedness by removing some barriers to transactions,” the global report said, “speeding up the deal process and helping reduce the number of failed deals.”
Be adaptable. “CEOs who apply a broader lens on areas such as strategy and new business models … into their value-creation approach and business transformation will be best positioned to accelerate their strategic goals and achieve sustainable growth,” the report said.
Focus on talent attraction and retention. Dealmakers will need to know what acquirers’ capabilities are needed, who possesses those capabilities, and what programmes and plans are required to ensure talent sticks around, the report said. As emerging technologies become more widely deployed, key talent will be required to drive value.
Be bold but careful. It is important to assess the pros and cons carefully and take new challenges into account, the report noted, but getting ahead of competitors in the future requires actions to be taken now.
— To comment on this article or to suggest an idea for another article, contact Steph Brown at Stephanie.Brown@aicpa-cima.com.
