Boost in deal activity expected in second half of 2023 says RSM UK

New figures published today by the Office of National Statistics show the volume of inward deals (foreign companies acquiring UK companies) fell 13% year-on-year in Q4 2022 to 170 (from 196 in Q4 2021). But as economic forecasts improve RSM UK believes that this could give sellers additional comfort to push forward with M&A processes, thereby leading to a potential boost in deal activity in Q3 and Q4 this year.

UK companies were going on the acquisition trail domestically in Q4. Deal volumes were down year-on-year (from 303 in Q4 of 2021) to 237 in Q4 of 2022. However, the total deal value of domestic M&A (UK companies acquiring other UK companies) was £3.6 billion in Q4 2022, £1.7 billion higher than the previous quarter (£1.9 billion), but £0.6 billion lower than Q4 2021 (£4.2 billion).

UK businesses eyeing up foreign companies was also up year-on-year to 76 (up from 71 in Q4 2021) but down from 89 in Q3 2022 – a drop of nearly 15%. The value of outward M&A in Q4 2022 was £10.1 billion, £2.5 billion more than Q3 2022 (£7.6 billion) and £6.7 billion higher than Q4 2021 (£3.4 billion).

James Wild, partner and head of M&A at RSM UK, said: ‘The challenging economic conditions last year undoubtedly impacted on deal activity at the end of 2022. Deals were still to be made but they were curbed to some extent by the hesitancy of investors and funders in response to the shifting sands both economically and geopolitically.

‘The first half of 2023 will continue to throw up challenges especially as bank debt to fund transactions is harder to come by; or where targets have exposure to, for example construction or retail. However, transactions are happening, in particular companies with recurring contracted revenues are attractive targets to circling investors, with more of a focus on underlying cashflow generation than growth.

‘I do expect a return to more normal transaction levels in the second half of 2023. The delays in deals over the last few months should ease and the tap turned on more for dealmaking. Indeed, as economic forecasts continue to improve, we should see more companies gearing up to market themselves to potential investors in Q2 and investors, especially in the PE market and overseas buyers, should have more opportunities to invest in UK businesses in Q3 and Q4 of this year.’