Financial deals set for rate-fuelled rebound from nine-year low, EY says
Mergers between financial services firms could be set for a rebound this year despite UK deals in the sector slumping to a nine-year low in 2023, EY has said.
Just 273 deals were struck involving UK-based financial services firms last year, a nine per cent fall from the 301 deals notched in 2022, according to the Big Four firm’s latest financial services M&A analysis, shared with City A.M.
The total deal value for the year also slumped from to £12.1bn from £14.9bn in 2023, the lowest figure since 2014.
Dealmaking globally was hammered last year as soaring inflation and rising interest rates ramped up the cost of financing M&A for potential buyers. Fears of a global banking crisis also roiled valuations in the sector.
However, deals could return this year as the prospect of interest rate cuts on both sides of the Atlantic bolsters appetite from firms, EY predicted.
“While many of the headwinds are still present this year, interest rates are projected to fall, which should lift market confidence,” said EY’s M&A chief Tom Groom. “As a result, we anticipate M&A activity to increase throughout 2024 as firms look at new ways to innovate and grow in this improved economic environment.”
City traders are pricing in interest rate cuts in the UK from around May this year, with the base rate expected to come down to four per cent by the end of the year.
Aggressive monetary policy weighed on a predicted flurry of deals last year by overseas buyers. The number of foreign companies acquiring UK targets fell to 54 in 2023 from 65 in 2022, with total value falling from £7.7bn in 2022 to £6.3bn in 2023, according to EY’s figures.
UK firms acquiring overseas targets fell from 69 to 66 deals in 2023, with an overall deal value of £1.7bn in 2023, down from £3.2bn in 2022.