City deals slump to post financial crisis low – but a wave of takeovers may be coming
Dealmaking in the City cratered to its lowest level since the financial crisis this year as rising interest rates and economic jitters shook the market and dampened the appetite for deals.
The total value of mergers and acquisitions involving UK companies slumped by a third to just $265.4bn in 2023, the most subdued year of dealmaking since 2009, according to data from the London Stock Exchange Group.
The total number of deals involving British companies fell by 19 per cent to 5,508 from last year.
Despite predictions of a wave of so-called public-to-private acquisitions, dealmaking was scuppered in the first half of the year as rising interest rates ramped up the cost of financing deals and tumbling valuations meant firms were reluctant to sell-up.
Analysts at the London Stock Exchange Group said potential buyers across the economy had been put off by volatility and the stricter hand of competition regulators looking to block deals.
“Steeply rising interest rates and a concerning outlook for the UK economy, combined with stricter antitrust enforcement and ongoing geopolitical tensions curbed the appetite for deal making in 2023,” said Lucille Jones, senior manager in LSEG’s Deals Intelligence division.
“M&A involving UK companies declined 33 per cent to the lowest level in fourteen years, with double-digit percentage declines for both the domestic and cross-border deal categories, and across all sectors.”
The figures mark a sharp decline from the record figures notched in 2021 when pent up demand and cash accrued before the pandemic was put to use. Some 7,601 deals were struck in 2021 with a value of $658.4bn as private equity and corporates swooped in to buy UK firms.
The value of deals announced during the first quarter of the year fell to the lowest quarterly level since the final quarter of 2009, but the year ended with deal announcements worth $91.5bn between October and December, marking the most valuable quarter of deals since the second quarter of 2022.
In 2023, the largest deal with UK involvement announced was a $14.4bn offer for Adevinta by a consortium including Permira Advisors and Blackstone. The largest involving a UK target was a $6.1bn bid for veterinary drugmaker Dechra Pharmaceuticals by Swedish buyout group EQT.
While a take-private frenzy in the capital failed to get off the ground in the first half of the year, a wave of firms were plucked from the market as volatility began to settle in the second half of the year. A total of 38 firms were taken into private hands by the end of the year in a worrying trend for the London Stock Exchange.
Lawyers and advisors are also gearing up for a spate of deals in the first half of next year as markets begin to settle, with private equity firms lining up deals teams through December to get a “head start”, insiders have told Morning Wire
“They’re ensuring that in a crowded market of companies for sale, they’ve spent time in the last quarter of this year giving potential buyers and their advisors early previews and discussions about targets,” Christopher Sullivan, a deals lawyer at Clifford Chance told Morning Wire
Paul Mullen, a corporate finance lawyer at Hogen Lovells, told City A.M. in December it felt like “things have kicked off in the last few weeks,”
“I would say quite a number of processes have [begun in December], with people looking to have financing in place for a bid deadline, with a view to those deals actually completing in the new year,” he added.