UK takeover and tie-up dealmaking shrank by a third this year, hitting its lowest level since 2009, as rising interest rates and concerns over Britain’s economic outlook affected buyers’ appetites.
Figures compiled by London Stock Exchange Group’s Deals Intelligence team show that the total value of mergers and acquisitions deals involving UK firms fell by 33% to just $265bn (£207bn) over 2023.
That is down from $395bn a year earlier, and marks a significant drop from the post-lockdown rebound that sent UK deal values to $658bn in 2021.
The drop reflects double-digit declines in domestic and cross-border deals – down 37% and 49% respectively – with both foreign and local buyers deterred by the UK’s economic prospects. While global dealmaking also cooled this year, the drop was far less dramatic than in the UK – at just 17% to $2.9tn.
That is despite a rise in the number of private equity firms buying UK businesses and striking 915 deals, the highest number of buy-ups since records began in 1980. However, the value of those deals was far smaller, at $41bn. That is down 41% compared with 2022, when private equity takeovers were worth $70.5bn.
UK firms were the target in $120bn worth of merger and acquisition deals, marking a 45% drop from 2022, while outbound deals – where the UK was buying businesses overseas – rose 12% to $104bn.
Overall, the total number of UK deals fell by nearly a fifth, to about 5,500, with the largest being the $6.1bn takeover of Dechra Pharmaceuticals, the UK veterinary pharmaceuticals company, by Swedish buyout group EQT.
Lucille Jones, a senior manager at LSEG Deals Intelligence, said the UK’s dealmaking decline was due in part to economic woes, with disappointing forecasts driving away potential buyers. “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 dealmaking in 2023,” she said.
UK economic growth has nearly flatlined, due in part to persistent inflation that started the year at more than 10%. It has forced the Bank of England to continue raising rates into the summer, to 5.25%, affecting the corporate sector and household spending.
Recently released figures showed that gross domestic product (GDP) fell by 0.1% in the third quarter, worse than originally thought, while second-quarter figures were revised down to zero from a previous estimate of 0.2%.
An economy is considered to be in a technical recession after two consecutive quarters of contraction in GDP, and a further contraction in the fourth quarter would push the UK into that category.
Businesses have also been concerned about the more aggressive stance taken by the UK’s competition regulator. Even attempts to block deals between US companies, including Microsoft and Call of Duty video game publisher Activision Blizzard, and the software developers Adobe and Figma, have led to accusations that the UK is “closed for business”.
However, there may be hope on the horizon for UK dealmaking, which ended the year more strongly than it began. While the value of deals announced during the first quarter of the year fell to the lowest quarterly level since the end of 2009, deals hit their highest quarterly total since mid-2022, in the final three months of the year.
“With inflation coming down and rates normalising, it could give CEOs and boards a little more confidence with which to plan their moves in 2024,” Jones said.
