Mergers and acquisitions: UK deals dry to pandemic low amid ‘constrained’ conditions

The number of UK mergers and acquisition (M&A) deals continued to fall in the final three months of 2023, with December seeing the lowest number since the coronavirus pandemic began.

There were a total of 367 combined domestic and cross-border mergers and acquisitions in the fourth quarter of the year, down from 400 in the three months before, data from the Office for National Statistics revealed today.

The rate of deals also fell month-to-month, with December having only 83 M&A deals, the lowest since the 58 deals in May 2020. However, domestic M&A deals totalled only 30 in December, compared to the low of 35 in May 2020.

The quarter overall saw the second lowest number of M&As in six years, with the only quarter seeing fewer deals being the second quarter of 2020.

Despite this, the value of M&A deals actually rose over the quarter, with inward, outward and domestic M&A all seeing an uptick. Domestic M&A totalled £2.7bn, up from £2.5bn in the previous quarter

Meanwhile, inward M&A, or foreign companies acquiring UK companies, rose significantly, to £8.6bn from £5.3bn in the previous quarter, while outward M&A, or UK companies acquiring foreign companies, totalled £3.2bn, up from £2.1bn.

Phil Adams, managing director and global head of technology at investment bank Houlihan Lokey, said the poor data reflected the fact that “macro-economic conditions remain relatively constrained”.

“Despite private equity firms holding record levels of dry powder and facing mounting pressure to deploy capital, larger buyout transactions continue to be subdued, reflecting the lingering uncertainty prevailing in the market,” he said.

Lucy Stapleton, head of deals at PwC UK, agreed, pointing to the “difficult market conditions deal-makers faced”.

However, both argued that there were rays of hope on the horizon for M&A, with Stapleton saying that the UK was “in a much better place than we were a year ago” due to falling inflation and stabilised interest rates.

“Improving economic conditions, pent up demand and the appetite we are seeing from businesses to do deals should see the market recover this year with the most robust areas of the market, underpinned by societal megatrends such as healthcare, AI and net zero driving activity,” she added.