According to a new report by EY, the UK reported a 16% rise in deal volumes for H1 of this year, totalling 160 deals, marking a 10 year high. However, deal value for this period has fallen from £11.5bn in the first half of 2022 to £4.7bn, indicating both a significant decrease in investor confidence complimented by regulatory implications from the CMA – particularly amongst higher profile deals. Despite headwinds, Claire Trachet M&A expert and CEO of business advisory, Trachet, points towards Q4 of 2023 to experience a significant increase in M&A deals as we expect inflationary pressures to decrease over the next 6-12 months. In light of this, Trachet highlights the need for founders to get deal-ready before the end of the year to secure a potential M&A deal once investors decide to begin deploying capital on a larger scale.
Following a turbulent market, continued rising interest rates, and several other macroeconomic challenges, M&A value has suffered a decline in volume. This can potentially be attributed to the CMA blocking deals that could have benefited the sector, such as the $69 Microsoft-Activision deal, and most recently Ineos’ attempt to acquire Swiss rival Sika. As a result, investor confidence is wavering, leaving stakeholders reticent to carry out deals.
However, Trachet indicates nascent markets particularly in the tech sector such as AI and cybersecurity will likely trigger an M&A flurry, with research from Earlybird, finding the UK already houses the largest number of AI startups in Europe at around 334, presenting optimism that the AI sector will encourage growth. A PWC study found that companies who made deals amidst downturn saw higher shareholder returns than others in their industry, suggesting that optimism could be on the horizon for companies within these sectors who are seeking an M&A deal. Further to this, a report by EY found that 50% of UK CEOs plan to acquire in the next 12 months, supporting Trachet’s argument that founders need to become deal-ready within the next few months.
Claire Trachet, CEO/founder of Trachet, comments on how businesses can get ahead of the M&A and secure a deal:
“During periods of uncertainty, companies and potential acquirers have adapted their investment strategies, resulting in the current deals market. Although the current economic cycle differs from previous ones, there is still a significant amount of capital available for M&A transactions. I firmly believe that companies that can leverage this capital and execute deals early in a downturn have the potential to outperform others in their industry – we will begin to see this towards Q4 of this year once investor confidence picks up”
“I believe this time should be used to encourage founders to be looking to opportunities in the near future when it comes to entering a dealmaking process. Revisit and reassessing M&A best practices in terms of deal strategy, leadership, capital, customer experience, operations, and the workforce are all key considerations as well as the psychological impact of uncertainty on risk tolerance and the challenges associated with declining M&A capital and debt management.
“For smaller businesses, it is understandable that founders are emotionally attached to their businesses, the next 6-12 months will be a key period for founders to examine whether an M&A deal is the best outcome to carry forward their organisational growth. There needs to be a look at what the priorities of the company are, and then a conversation between the board and investors about this.
“If you can see the end of the runway, then you shouldn’t be shy to let go. An M&A should not be seen as the end, but rather the beginning of a new chapter with someone bigger, more resources, and someone who will better support and serve the business. “
