The value of dealmaking among UK financial services firms could rebound this year after a sharp slump in 2022, as volatile valuations settle and private equity firms swoop back into the market, EY has predicted.
The predictions come after the total value of deals in the UK fell 40 per cent last year to £15.2bn as markets were roiled by soaring inflation and the shocks of war in Ukraine, figures from EY show. A slump in overall deal value came despite the amount of deals reaching a nine-year high of 306.
Wealth and asset management firms notched up a total of 133 deals in 2022 – up from 114 a year prior – but overall disclosed deal value fell by over half from £13bn to £5.6bn.
Total banking deals similarly ticked upwards from 58 to 74 deals last year but total deal value fell by 26 per cent from £6.1bn to £4.5bn.
The scale of the fall in value underscores the turbulence that has shaken the market in the past 12 months, sparking sharp falls in valuations and causing dealmakers to pull back from blockbuster mergers and acquisitions.
EY’s UK strategy and transactions leader Tom Groom said that value could surge upwards this year however as valuations settle and private equity firms re-enter the market.
“Although the current deal environment remains challenged, as high inflation and geopolitical tensions persist, financial firms continue to see M&A as an enabler for growth, and a means of developing digital capabilities and achieving economies of scale. The macro environment has impacted deal value, limiting private equity involvement in particular,” he said.
“However, as valuation expectations adjust and the impacts on business become clearer, private equity investments are expected to increase throughout 2023.”
Separate data from S&P Global Market Intelligence last week found that the value of private equity and venture capital-backed in the UK across sectors last year came in at just $28bn compared to $72bn in 2021, according to S&P Global Market Intelligence data.
While private equity houses reined in their investment last year, they are estimated to be sitting on mountains of ‘dry powder’ raised prior to the market turbulence. City broker Peel Hunt said the figure was around $250bn at the beginning of January, citing figures from Pitchbook and Refinitiv.