A UK deal outlook for 2024

A UK deal outlook for 2024

It has been widely reported that 2023 was not a great year for merger & acquisition (M&A) activity for the most part. In H1 2023, UK deal volume and value were both down when compared to 2021 and 2022, however, they were comparable to 2018/19/20.

The inflationary impact on the Bank of England (BOE) base rate had a significant effect on confidence levels in 2023. The velocity in which the BOE base rate rose (0.25% in February 2022 to 5.25% in August 2023) not only restricted the level of new debt being raised, it also caused severe uncertainty within the economy - leading to many potential deals being severely delayed or put on hold.

Despite this, our Corporate Finance team saw a high level of activity in 2023, and the suggestion is that this will carry on into 2024.

Lee Humble, UK Head of Corporate Finance, shares his views: “As we enter 2024, inflationary pressures appear to have subsided (for the time being) and we start the year with a build-up of incomplete deals transferring from 2023. Deal volume in the lower mid-market (£10m - £50m) held up relatively well in Q3 of 2023 and, although we await the Q4 results, historical data indicates that deals in this range will remain the most active.

Lee predicts, ”The focus for many CEOs in 2024 will be strategic transactions, being M&A, strategic alliances or joint ventures and this sentiment is not constrained to a small number of sectors. Those businesses that are cash rich will be able to take advantage of a window of opportunity, with a relatively tough financing environment still in place.

“During the final quarter of 2023, the percentage of overseas buyers of UK businesses increased when compared to domestic buyers. This may be an indication of increasing confidence in the UK economy, but only time will tell.

“The three most active sectors for deal flow over the last two years have been Information and Communication, Professional, Scientific and Technical Activities and Manufacturing. There is nothing to indicate that this will change in 2024, although consolidation within the Financial and Insurance sector has closed the gap on the top three.

View chart | Deals in top 10 sectors 

Finally, one trend that Lee is certain will continue is that the majority of deals will remain between businesses within the same sector: “Acquiring across different sectors carries significantly more risks than those within the same sector and this is borne out by the deal statistics. Over the last two years approximately 70% of deals are between a buyer and a seller in the same sector.”

View chart | Count of deals by year, quarter and same sector, 2022-2023

In summary, it appears that deal volume should increase in 2024, but it may take until H2 before we see evidence of this increase in confidence. This may also be apparent with an anticipated higher number of overseas buyers and targets.

We are here to help 

If you have any questions in relation selling or acquiring in 2024, or would like to discuss your options, please get in touch with a member of our specialist team or your usual Azets advisor.