The UK financial services industry reported 273 M&A deals in 2023, representing a 9% fall from the 301 deals recorded in 2022.
The total disclosed deal value for the year also fell from £14.9bn in 2022 to £12.1bn in 2023, which is the lowest figure since 2014.
According to EY’s latest M&A analysis, despite a promising start to the year, 2023 was characterised by a challenging economic climate and investor caution following the banking crisis in March.
- The number of UK banking deals fell from 71 in 2022 to 54 in 2023, although the total publicly disclosed deal value rose from £4.3bn to £6.7bn year-on-year
- The number (and size) of deals in the UK wealth and asset management industry fell from 132 in 2022 to 107 in 2023, with deal value more than halving, from £5.6bn to £2.1bn year-on-year
- The number of UK insurance deals rose from 98 in 2022 to 112 in 2023, however, total deal value still fell significantly from £5.1bn to £3.3bn year-on-year
These statistics indicate a general slowdown in M&A activity in the UK, with provisional estimates pointing to fewer transactions and variable deal values across different types of M&A.
This trend could be influenced by various factors including economic conditions, regulatory changes, and shifting market dynamics.
In addition, sustained high interest rates, recessionary concerns and growing geopolitical tensions have increased unease in recent months, driving some firms to pause or even reconsider M&A plans.
The UK financial services industry recorded a slowdown in M&A activity in both the number and value of transactions this year.Tom Groom, UK Financial Services Strategy and Transactions Leader at EY
The number of non-UK firms acquiring UK targets fell to 54 in 2023 from 65 in 2022, with total value also falling from £7.7bn in 2022 to £6.3bn in 2023.
As for UK firms acquiring overseas targets, this fell from 69 deals in 2022 to 66 deals in 2023, with an overall deal value of £1.7bn in 2023, down from £3.2bn in 2022.
The challenging macroeconomic climate impacted M&A activity in 2023. While many of the headwinds are still present this year, interest rates are projected to fall, which should lift market confidence
“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”, Tom Groom concludes.
Deals include transactions (announced or completed) where the target is in one of the three financial services sectors: banking, insurance, or asset management.
Equity investments are included, but joint ventures are not. Deals where less than 20% (disclosed) of the company was acquired have been excluded from this analysis. The total number of deals relate to where there was either a UK target or UK acquirer.
Outlook for M&A in the UK financial market in 2024
The outlook for mergers and acquisitions in the UK financial market in 2024 is mixed, with various factors influencing the market dynamics:
- Positive Sentiment Among Corporates
- SMEs’ Acquisitive Intentions
- Focus on Smaller Acquisitions by Larger Firms
- Consolidation in Specific Sectors
- IT Sector Optimism
A significant majority of UK corporates, as per a survey by Deutsche Numis, view the outlook for M&A in 2024 positively. About 88% of these corporates are expecting an uptick in M&A activities, particularly in takeover deals.
There is a notable acquisitive sentiment among UK SME entrepreneurs. A large proportion of these entrepreneurs have considered acquisitions in the past year and are planning at least one acquisition over the next five years.
This sentiment is driven partly by SME owners recognizing opportunities to consolidate and grow market share through acquisitions. Private equity firms, sitting on significant funds, show strong interest in companies that have navigated recent market challenges successfully.
Larger firms are adapting to changing industries and economic headwinds by focusing on multiple smaller acquisitions rather than a few larger, more costly takeovers. This shift is influenced by ongoing high inflation and the need to rapidly integrate new technologies and skills into their workforce. The trend of acqui-hiring, where businesses acquire others mainly to strengthen their workforce, is expected to come to the fore.
Certain sectors, like logistics, may experience considerable consolidation in 2024. Smaller operators in this sector, more vulnerable to challenging trading conditions, could become targets for acquisition.
This consolidation is anticipated due to both distress levels and the need for companies to adapt by adding new technologies and expanding geographically.
In the IT sector, SME owners are showing optimism and a willingness to invest. This sector has demonstrated resilience to macroeconomic headwinds, and businesses are looking to invest in areas like marketing, digital technologies, and customer service.
Overall, the UK financial market’s M&A outlook for 2024 is cautiously optimistic, with a focus on smaller, strategic acquisitions and consolidation in specific sectors. The sentiment among SMEs and larger firms indicates a readiness to adapt and grow amidst the evolving economic landscape.
by Yana Keller