In a recent report by Experian, the landscape of mergers and acquisitions (M&A) in the UK has been dissected, revealing a mix of activity and challenges as we approach the end of 2023. The numbers tell a story of resilience and adaptation in a market that continues to navigate uncertainties.
Decline in Deals: Navigating Economic Shadows
The UK has witnessed a total of 4,493 deals in the year to the end of Septmber 2023, marking a notable decline of just over 19% compared to the same period in 2022. The report attributes this drop to mounting fears of recession and the specter of rising interest rates casting a shadow over the economy.
Lower End Resilience, Mid-Market Squeeze, and Mega Deal Slowdown
While the lower end of the market has remained relatively brisk, with 948 deals recorded, representing a 14% decline in both volume and value, the mid-market range experienced a more significant squeeze. Deals in this segment decreased by 30% in volume and 35% in value. Big-ticket mega deals, those valued at £1 billion or more, saw a 25% decrease, with 28 deals worth £73 billion announced this year compared to 37 worth £101 billion in the previous year.
Anticipating a Turnaround: The Role of Interest Rates
As interest rates approach their peak, there is optimism that the final quarter of 2023 and the subsequent year, 2024, could witness a much-needed resurgence in M&A activity. The market is closely watching for signs of a rebound as economic uncertainties begin to stabilize.
Wales Bucks the Trend, London Faces a Decline
Regionally, M&A activity experienced a decline across the board, except for Wales, which saw a 6% increase. The Yorkshire & Humber area fared the best with only an 11% decline, while Greater London faced a substantial 25% reduction, and the South West recorded the most significant fall of 41%.
Real Estate Takes a Hit, Professional Services Stands Stronger
Unsurprisingly, the Real Estate industry suffered the most due to the higher Bank of England interest rate, which climbed from 1.75% in September 2022 to 5.25% in September 2023. However, a potential silver lining emerges as the rate remains unchanged from August 2023, hinting at a potential peak or slowdown in interest rate increases. Industries that weathered the storm more resiliently include professional services, wholesale & retail, and manufacturing, with 13%, 14%, and 17% fewer deals, respectively.
Spotlight on Professional Services
The professional services sector has been particularly active with the accountancy space which now consists of private equity backed consolidators growing via acquisition regionally, nationally and internationally. For example, in June 2023 Azets announced they had secured investment from PAI Partners who will sit alongside their incumbent private equity investor HG Capital. Azets has continued to make acquisitions throughout the year including the acquisitions of Gorilla Accounting in Bolton and Naylor Wintersgill with offices in Leeds and Bradford. DJH Mitten Clarke, a top 50 accounting firm and backed by Tenzing Private Equity, made their first acquisition in February 2023 by acquiring Leeds based Novis & Co.
Financial Advisers, Equity Investors, and Legal Advisers
As we navigate this dynamic M&A landscape, certain players stand out. The top three financial advisers include K3 Capital Group, Grant Thornton, and RSM. Noteworthy equity investors are the Business Growth Fund (BGF), Foresight Group, and Lloyds Development Capital (LDC). HSBC, Thincats, and SME Capital emerge as the top three debt providers, while legal advisers making the most deal contributions include Harrison Clark Rickerbys, Shoosmiths, and Addleshaw Goddard.In conclusion, the UK M&A landscape in 2023 reflects a nuanced picture of adaptation, challenges, and potential opportunities. As we approach the final stretch of the year, all eyes are on the evolving economic factors that will shape the M&A terrain in the coming months.