Navigating the waves – the ups and downs of UK Public M&A in 2024

Despite a multitude of geopolitical, economic and regulatory challenges, the UK has seen a surge of public M&A transactions in the first quarter of 2024. What has catalysed this uptick and can we anticipate the momentum to continue for the rest of the year?

The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

The deals that got away in 2023

The M&A markets in 2023 were subdued. Most of the public M&A transactions were in the lower and mid-markets (under £500m and/or AIM listed) range. Whilst we saw significant interest from potential bidders (particularly from foreign bidders and financial sponsors seeking to take advantage of low valuations), the cost of financing in the high interest / inflationary environment and the valuation gap put a dampener on the successful execution of public M&A last year. 

With the slow down of M&A activities, many listed companies turned to share buybacks and defence planning as an attempt to hedge against the depressed share price and the continued rise of shareholder activism. We expect target companies to have developed more robust and realistic valuations and forecasts over the last year which may help close the valuation gap in 2024.

What has happened in 2024 thus far?

The first quarter of 2024 has shown a healthy uptick in public M&A activity in the UK, signalling a growing appetite particularly for strategic corporate transactions.

13 firm offers have been announced in Q1 2024, with the majority by strategic bidders. Deal values have also increased, with a shift of focus to the higher end (£1bn+) market and LSE Main Market listed companies. As we look across sectors, telecoms and computer / electronic solutions have been the most active sectors for consolidation so far. With active strategic bidders, there has been an increase in share exchange offers. There has also been a return to more competing bids.

This increase in higher end bids has been driven by the stabilisation of interest rates, leading to more foreseeable financing costs and opportunities for strategic borrowing. All of this has led to more confidence that transactions can be effected on acceptable terms. As well as newly considered transactions, some deals are returning which were considered to be too difficult in 2023, but appear achievable in the new environment.

Looking ahead in 2024

We expect that a pent-up demand for growth and the capital deployment schedules for financial sponsors will be drivers for ongoing market activity in excess of that in 2023, especially at the high-end. This will potentially benefit all sectors but will be particularly seen in sectors that demonstrated resilience and potential during the economic uncertainty of the past few years such as technology infrastructure and healthcare.

Whilst optimism feels justified for deal-making activities to continue for the rest of 2024, the road ahead is not without its challenges. Ongoing geopolitical tensions and upcoming elections continue to inject a degree of caution into cross-border M&A activity, and the newfound confidence is fragile. Furthermore, the increased scrutiny by anti-trust and foreign investment regulators in UK, Europe and US will continue to be a key gating consideration for many strategic transactions. Potential bidders are often undertaking enhanced anti-trust and foreign investment assessments prior to making an approach. It remains to be seen as to whether the valuation gap for the UK listed markets will close sufficiently to lead to more widespread activity than is currently the case. 

In practice, for deal makers, investors and companies, the ability to forecast the future valuation of the businesses, to navigate the regulatory environment and to anticipate shareholder reaction to any transaction will be key to successfully exploiting the current wave of M&A activity and delivering strategic value to stakeholders.

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