The UK mergers & acquisitions (M&A) market remains remarkably robust – if fragile – after nearly a decade of political, economic and social turbulence, a report from Bayes Business School suggests.
The UK mergers & acquisitions (M&A) market remains remarkably robust – if fragile – after nearly a decade of political, economic and social turbulence, a report published today by Bayes Business School (formerly Cass) suggests.
Co-author Dr Naaguesh Appadu, Research Fellow at Bayes’ Mergers & Acquisitions Research Centre, said: “With three prime ministers in 2022 alone and high inflation coming on top of Brexit, the pandemic and the Russian invasion of Ukraine, the M&A environment in the UK appears to be remarkably robust. Our analysis of M&A activity in the UK during this period of uncertainty suggests that some investors see uncertainty as the ‘new normal’.
“When the UK finally left the EU in January 2020 the country’s M&A landscape did change. After record-breaking activity in 2021 due to Covid, the market cooled in 2022 and fell further last year. The UK M&A market remains fragile and continues to drive inbound M&A activity.”
Dr Appadu continued: “That resilience has also perhaps paved the way for the number of mega deals, which has surged in the first quarter of 2024, indicating a robust recovery trend. This uptick suggests that mega deals are expected to persist throughout the year, signalling a sustained momentum in the M&A landscape.”
The resilience also reflects increased American interest, according to co-author Pratiksha Kandoi.
“The media and commentators often talk about “the UK for sale” because British stocks have been trading at their deepest discount to global peers in over three decades – mainly because of Brexit. American private equity firms increased their acquisition of UK companies by 35% in 2022/23, with 181 such transactions compared to 134 deals the previous year. That will continue until the UK stock market rises significantly.”
Views from the front line
Today’s report is based on interviews with practitioners and analysis of market activity and other research. It concludes:
- Participants felt that the deals being completed during this uncertain period tended to involve the very best companies or those on the brink of bankruptcy.
- While uncertainty obviously undermines investor confidence and is leading to fewer deals in the current market, value creation is possible for buyers who undertake meticulous due diligence and exercise appropriate caution.
- Interest rates are the key driver of M&A activity.
- People continue to pursue and close deals – making uncertainty, for many practitioners, the new normal.
Pratiksha Kandoi said: “Downturns can offer unique chances for strategically and financially robust companies. Financially challenged companies might sell non-core assets, offering buyers a chance to strengthen their competitive position.
“Deals during economic downturns often result in favourable outcomes, as firm values decline while deal premiums remain steady, allowing buyers to secure targets at a discount.
She continued: “Some investors who embrace uncertainty as the new normal are continuing to actively seek deals. They back themselves to trade throughout the economic cycle but they are looking for A, A+ businesses. The companies who have pursued deals throughout this period are typically cash-rich or are focussing on sectors that remain attractive even in periods of flux. Right now, that appears to include environmental consultancy firms as ESG issues move up the corporate agenda. Private equity funds will also be active as they must either invest their customers’ cash or return it.”
Market participants told the researchers that the resurgence of M&A activity depends on:
- Restoring monetary policy stability
- Achieving greater political stability
- Closer expectations around company valuation between buyers and sellers
- Boosting confidence in board rooms.
In the centre’s M&A Attractiveness Index Score (MAAIS) in 148 countries, which was published in February, the UK remained the most attractive destination in Europe for inbound and domestic mergers and acquisitions (M&A) investment and ranked only behind the United States and Singapore globally.
