Dealmakers brace themselves for 2022 surge in UK M&A
A survey of top dealmakers has revealed widespread conviction that the number of M&A deals in the UK will surge in the next 12 months, driven by an uptick in distressed deals as well as an expected flurry of activity in the TMT sector.
After the number of mergers and acquisitions involving UK companies dipped over the second quarter, 90 per cent of dealmakers expect an increase in new deals in the next twelve months, while 54 per cent expect this to be “significant”, according to Ansarada’s new survey of top execs dealing with M&A at investment banks, PE houses and law firms.
More than half (54 per cent) expect the number of distressed deals in the UK to rise in the coming 12 months, reflecting the perfect storm of Brexit headwinds and supply chain disruption faced by some UK businesses. This compares with 26 per cent in Europe as a whole.
But sentiment in investment opportunities in the UK remains robust amongst dealmakers, as 40 per cent expect the UK market to become a more attractive venue for inbound foreign investment, as funds benefit from the ability to buy companies at a favourable FX rate now that Britain has left the EU.
58 per cent expect it to stay more or less the same as in 2021, during which cheap valuations of London-listed companies post-Brexit turned the UK into a prime location for US PE funds seeking out bargains.
When it comes to the sectors that are ripe for M&A, one third (32 per cent) believe that TMT will drive the most activity in the next year, after the pandemic drove people towards even more digital consumption. This is followed by business, financial and computer services (26 per cent) and pharmaceuticals, medical and biotech (24 per cent), which have both fared relatively well during the pandemic.
On the other end of the spectrum, UK dealmakers remain pessimistic when it comes to SPAC deals, with only 38 per cent expecting an increase next year, in light of the FCA’s recent updates to listing rules. This contrasts with the rest of Europe, where 76 per cent expect SPAC deals to surge, largely due to recent SPAC-friendly regulatory updates.
The vast majority (94 per cent) of dealmakers noted that the Covid-19 pandemic has hindered the number of M&A deals in the current period, as the processes involved, and in particular due diligence, took much longer.
And they expect these commercial constraints to continue into the next year, with 36 per cent expecting due diligence to be the most difficult part of the deal process over the next 12 months.
“The UK M&A market is not fully out of the woods,” said Stuart Clout, chief revenue officer at Ansarada.
“Deals are still susceptible to a complex mix of extenuating situations. As we’ve seen, driver shortages and supply chain disruption in the UK has severely hampered UK businesses recently, and the largely expected surge in Covid cases locally is of course something to be mindful of,” he continued.
“These events will have knock-on consequences for dealmakers. Deal speed, preparation and quality due diligence is going to be essential if the expectations from the Dealmakers we surveyed are to be met.”