M&A opportunities are set to emerge over the coming months, despite a slow first half of the year in terms of both deal volume and deal value. Following a sharp drop in M&A, consolidation, AI and more creative deal structures are forecast to boost activity over the coming months.
According to new data from PwC’s UK M&A Industry Trends report, there were 1,902 UK deals during the first half of 2023, a 21 per cent decline from the 2,408 seen during H1 2022, as activity was hit by tight financing conditions and macroeconomic headwinds.
Meanwhile, factors including a reduction in large M&A transactions and a fall in average deal value saw M&A value decline 55 per cent from £95 billion in H1 2022 to £42.8 billion. As mirrored in a recent Refinitiv report, this UK drop-off comes amid a wider global decline, with PwC noting that global M&A volumes fell 4 per cent between H2 2022 and H1 2023.
PwC said: "While the number of transactions is holding up, the average deal size is significantly smaller. This is partly due to large private equity (PE) deals being put on hold temporarily as vendors wait for more stable conditions before exiting."
"Smaller deals are less affected by market volatility, often being viewed as the staple of dealmaking activity, allowing companies to take a series of steps on their transformation journey rather than one giant leap.”
However, PwC also notes that the current economic and geopolitical disruption being experienced in the UK and internationally could help to drive dealmaking, stating: "The energy transition is creating huge disruption in some sectors, with opportunities for M&A along the way."
According to PwC, many UK dealmakers are biding their time waiting to see whether opportunities emerge if valuations fall and capital to complete acquisitions becomes more readily available. "This is no doubt a challenging market, but we remain optimistic that the coming months will see new opportunities for those that have prepared well," the report states. "The days of riding valuation multiples are over — and that means putting value creation at the heart of every deal."
Looking forward, PwC expect several developments to emerge in M&A over the coming months:
More creativity in structuring and financing deals, with more equity investment, more minority interest deals and greater usage of sustainable financing.
Specialisation and consolidation, as investors focus on smaller and mid-market deals in key sectors, local markets, resilient and cash-generating assets.
Generative AI, with a growing number of UK generative AI companies creating a fertile M&A environment for the coming months and years.
An increase in bilateral agreements as opposed to competitive auctions, as well as single asset deals in which the investor and the management team know each other well.
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