City deals advisers gear up for rebound after election pushed M&A to four year low
The City’s deals advisers are gearing up for a rebound in activity in the closing months of the year after election uncertainty pushed mergers and acquisitions (M&A) to a four-year low in June, according to fresh figures today.
The value of total deals involving UK firms, as either targets or buyers, slumped to £11.8bn in the second quarter between April and June, down from £13.5bn between January and March, according to figures from the Office for National Statistics.
Just 385 transactions were completed across the three months, with June’s total marking the lowest number of takeovers since the depths of the pandemic in 2020.
The fall in dealmaking comes after two years of lacklustre appetite as rising interest rates have ramped up the cost of financing deals and inflation has roiled valuations.
Private equity firms particularly have been plunged into a quiet period as a slide in valuations forces them to hold onto assets.
While there have been signs of life this year, advisers said the election had weighed on appetite over the summer.
“The levels of UK mergers and acquisitions activity during the second quarter of 2024 are disappointing but not a surprise given the political uncertainty in the UK caused by the general election,” said Caroline Rae, a corporate partner at law firm Herbert Smith Freehills.
“However, we are cautiously optimistic that activity will pick up towards the end of the year as uncertainty over the economic outlook eases.”
Takeovers by foreign buyers also fell in value again to £5bn between April and June, down £600m on the previous quarter and £1bn less than the same period last year.
The figures suggest a raid on cheap UK companies may be easing after scores of US private equity firms and cashed up corporates launched takeover bids over the past two years.
Among the biggest deals to complete in the second quarter was the £762m takeover of Wiltshire-based logistics firm Wincanton by US rival GXO.
Despite the downturn, analysts have been bullish on the outlook for dealmaking in the coming months as firms look to complete on transactions ahead of Rachel Reeves’ budget in October.
“The focus now for business owners is the upcoming Autumn Budget and the looming threat of an increase in capital gains tax, as sellers rush to get deals over the line,” said James Wild, head of M&A at consulting firm RSM UK. “As a result, we expect the real increase in deal activity to be in the second half of the year.”
Lucy Stapleton, global head of deals at PwC UK, said she was expecting “confidence to continue growing in the market with UK elections now concluded”.