Mergers and Acquisitions in London in 2023: A speculative outlook
Mergers and Acquisitions (M&A) are transactions that involve the transfer of ownership and control of companies or parts of companies. M&A activity can have significant impacts on the economy, the industry and the stakeholders involved. In this article, we will provide a speculative outlook of the potential trends and developments of M&A involving UK companies, with a focus on London as a major financial centre, in 2023.
M&A activity in the UK
According to the Office for National Statistics (ONS), the total value of M&A involving UK companies increased for all three types of deals (inward, outward and domestic) in 2021 compared with 2020 https://www2.deloitte.com/uk/en/pages/financial-advisory/articles/mergers-and-acquisitions-market-outlook.html. However, the number of completed M&A transactions involving UK companies decreased in 2021 compared with 2020, from 1,513 to 1,362 https://www2.deloitte.com/uk/en/pages/financial-advisory/articles/mergers-and-acquisitions-market-outlook.html. This suggests that the average deal size increased in 2021, reflecting a shift towards larger and more complex transactions.
The ONS also reported that the value of inward M&A (foreign companies acquiring UK companies) in Quarter 1 2023 was ￡12.7 billion, ￡6.9 billion higher than the previous quarter (upwardly revised to ￡5.8 billion), but ￡4.1 billion lower than Quarter 1 2022 (￡16.8 billion) https://www.ons.gov.uk/businessindustryandtrade/changestobusiness/mergersandacquisitions. The value of outward M&A (UK companies acquiring foreign companies) in Quarter 1 2023 was ￡2.9 billion, ￡0.4 billion lower than the previous quarter (￡3.3 billion), and ￡2.7 billion lower than Quarter 1 2022 (￡5.6 billion) https://www.ons.gov.uk/businessindustryandtrade/changestobusiness/mergersandacquisitions. The value of domestic M&A (UK companies acquiring other UK companies) in Quarter 1 2023 was ￡4.0 billion, ￡0.9 billion higher than the previous quarter (￡3.1 billion), but ￡0.8 billion lower than Quarter 1 2022 (￡4.8 billion) https://www.ons.gov.uk/businessindustryandtrade/changestobusiness/mergersandacquisitions.
These figures indicate that M&A activity in the UK has slowed down at the start of 2023, following general stability across 2022. Some of the factors that may have contributed to this slowdown are:
??The uncertainty and volatility caused by the COVID-19 pandemic and its variants, which have disrupted business operations, supply chains and consumer demand.
??The inflationary pressures and rising interest rates, which have increased the cost of capital and reduced the profitability and valuation of businesses.
??The geopolitical tensions and trade frictions, which have created barriers and risks for cross-border transactions.
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??The regulatory changes and scrutiny, which have imposed stricter rules and requirements for M&A deals, especially in sectors such as technology, media, telecommunications, healthcare and financial services.
However, these factors may also create opportunities for M&A activity in the UK in the rest of 2023, as businesses seek to:
??Leverage their competitive advantages and core competencies, such as innovation, digitalisation, sustainability and customer loyalty.
??Diversify their markets and products, such as expanding into emerging markets or new segments.
??Consolidate their positions and achieve economies of scale and scope, such as merging with or acquiring competitors or complementary businesses.
??Transform their business models and strategies, such as adopting new technologies or enhancing their environmental...