UK M&A Industry Trends 2024

Poised for action: Preparing for the return of deals

The UK M&A market has felt like a coiled spring in recent months. The persistently low activity over the past two years, both in terms of deal value and volume, is understandable given the challenging conditions. But the pressing need for many companies to transform, combined with the significant amount of funds built up by Private Equity (PE), are becoming hard to ignore. Activity is returning – but under very different conditions.

Our analysis reveals a sharp slowdown in deal activity in the UK since 2021, mirroring the global trend. UK deal volume in 2023 was 18% lower than in 2022, and almost a third lower than 2021. This decline can be seen across almost every sector; health was the only sector to report more deals in 2023 than in 2022.

Last summer we argued that the reduction in the number of megadeals was largely to blame for the overall downward trend, partly because big private equity deals have been on hold in anticipation of more stable conditions ahead. This can be seen clearly in the 2023 statistics; total deal value plunged to £83bn, compared with £269bn in 2021 and £149bn in 2022.

UK deal volumes and values, 2018–2023

The new year, though, brings optimism. Interest rates have stabilised, inflation is falling, and less volatile markets make it easier for dealmakers to price deals and plan ahead. In short, vendors are more comfortable about selling and investors are more positive about investing. But this is a complex picture, and there are many factors at play that will influence activity in the coming months.

“While the macroeconomic environment is still challenging, we are in a much better place than we were a year ago. Inflation is steadily falling, interest rates have stabilised, and there's a growing appetite for deals.”

_{Lucy Stapleton

Head of Deals, PwC UK}

Corporates are under pressure to transform

The speed of change continues to compel businesses to adapt. PwC’s 27th UK CEO Survey found one in five (21%) CEOs believe their company will not be viable in 10 years if it stays on its current path, highlighting the stakes at play. But leaders cannot solely rely on incremental, organic changes.

From enabling faster tech adoption to accelerating decarbonisation, deals play a crucial role in driving business transformation at speed. Our latest Value Creation research reveals over half (56%) of senior executives view transactions as the best way to keep up with market developments, and we have been seeing more examples of transformational deals in recent years. We envisage many corporates following the path of retail giant ASDA, who acquired the EG Group UK business – an operator of petrol filling stations, convenience stores and foodservice outlets – to transform its operations and reach new customers in a short period of time.

“The urgent need for companies to advance their tech capabilities, particularly around cloud and GenAI, is upholding deal volumes in the technology, media, and telecom sector. In parallel, the energy transition is supporting deal activity across energy, utilities and resources, as companies transact to transform.”

_{Tim Allen

Deals Industries and International Leader, PwC UK}

Private Equity is impatient

PE has become the dominant source of deals, accounting for 42% of all transactions in 2023 by volume and 55% in terms of value. PE houses are keen to get back to business as usual and invest the funds that have built up in recent years. But while they are much more confident about market conditions, they are targeting their investment carefully, with TMT, energy, pharma and healthcare receiving the bulk of their attention.

All this supports the view that an upturn in activity is on its way, but we should not forget that economic conditions are still challenging – while inflation and interest rates are still historically high, consumer spending is depressed, high debt levels mean high interest costs, and companies have many pressing priorities. The geopolitical landscape is also unsettled. A General Election in the UK and a potentially fraught US election complicates matters, and international supply chains are disrupted.

“With stability returning to the investing environment, increased pressure from limited partners, and a build up of dry powder, many fundamentals point towards more deal-making this year. But the cost of capital remains high, and dealmakers will need a robust value creation plan to justify valuations.”

_{Hugh Lloyd Ellis

Private Equity Leader, PwC UK}

As activity returns, the deals market will feel very different. We expect dealmakers and investors of all types to be careful, and choosy. The pace of change is not affecting all sectors equally, which means that the upturn in deals is likely to be unevenly distributed – we are already seeing strong activity in some sectors (TMT, energy and health) while others (consumer markets) remain quiet. Financing will be more challenging and expensive than before, with private credit playing a far greater role.

Making a mistake in this market could be costly and dealmakers will be under pressure because once activity picks up, things may start moving very quickly. It’s essential that companies and their leaders are prepared for what’s ahead:

Take a strategic and transformational view. There should be a clear business rationale for transformative deals. We explore how to use transactions to strategically accelerate transformation in our latest Value Creation report.
Get creative with financing. The way deals are financed has changed. We are seeing a higher proportion of equity investment, sustainable financing, and more minority interest deals.
Be bolder around value creation, especially the top line. The market alone is unlikely to underpin uplifts in investment value. Investments will require more work and energy, with clear and ambitious value creation plans that focus on top-line performance as well as operational efficiency.
Prepare assets for sale and plan for the capabilities you need to transform. Plans need to be mapped out and ready to go.

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. 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.

Read more about global and sector-specific M&A trends, or explore the findings from our latest Value Creation report to discover how businesses are using transactions to transform.