UK deals set to flatline as sluggish economy puts off foreign buyers
Takeover activity in the UK is set to flatline in the second half of the year as foreign suitors get cold feet over the gloomy economic prospects facing the country, bankers have warned.
In a half year review of takeover activity in the UK, London-listed investment bank Peel Hunt said dealmaking had “rebounded to an extent” this year and private equity’s interest in listed firms had returned but “not with the conviction that many anticipated”.
Just £12bn worth of take-private deals were tabled by buyers in the six months to the end of June, down 45 per cent on the second half of last year, according to Peel Hunt’s analysis.
A number of the most high value bids launched in that time have also since been rebuffed by bosses, with Apollo’s swoops on THG and Wood Group both being slapped away.
The figures mark a subdued 2023 after many analysts had predicted a wave of take-private deals led by cashed up foreign private equity firms.
Peel Hunt’s head of M&A Michael Nicholson said expectations of a “material acceleration” in in the third quarter of the year had now softened across the board, with the sluggish performance of the UK economy among the reasons for subdued demand
“While private equity houses continue to screen UK plc actively, we expect take-private activity to remain at around current levels in the prevailing financing environment,” he said in comments shared with Morning Wire.
“UK macro concerns are also expected to temper inbound interest from overseas corporates. However, the liquidity requirements of UK fund managers should drive supply of potential targets at undemanding valuations, especially in the small and mid-cap segments.”
Higher interest rates this year have also ramped up the cost of fresh debt financing for deals.. However, Nicholson added that larger UK firms with existing debt facilities and the option to issue shares as part of a deal may see a “window of opportunity” to snap up smaller rivals.
The deals slowdown has hit firms like Peel Hunt who have seen their fees dry up. The bank reported a £1.5m loss in its most recent full year results in what it said had been the “most challenging year” since its foundation.
The predictions of a sluggish UK deals environment by the bank comes amid a wider global slump in M&A activity this year. Deals worth some $1.3 trillion globally have been struck in the year so far, down 38 per cent compared to the same period last year, according to LSEG Deals Intelligence.
M&A with any UK involvement, including both public and private firms, came in at totals $111.8bn so far this year, down 51 per cent on last year and the lowest level since 2016 according to the data.