The number of foreign buyers swooping on UK firms tumbled sharply in the second quarter as a predicted deals raid sputtered out amid rising interest rates and volatile markets, official figures show.
Between April and June, the value of inward mergers and acquisitions involving UK firms plunged to £7.4bn, down £4.4bn on the previous quarter and £4.7bn lower than the same period last year, according to official figures from the ONS.
The overall value of deals including UK firms buying their compatriots also slumped to around £12.1bn from £17.4bn the previous quarter, while the number of deals done involving UK firms fell by 58 to 450.
The figures point to the tricky conditions still facing dealmakers as high interest rates push up the cost of financing takeovers and volatile markets play havoc with pricing. A stronger pound this year has also pushed prices higher for foreign buyers.
While analysts had feared a wave of take-private raids on UK plc this year as buyers took advantage of cheap firms, the frenzy has yet to materialise.
Lucy Stapleton, head of deals at PwC UK, said it had been a tricky start to the year for dealmaking.
“The UK has experienced a tough M&A market during the first half of the year and the [second quarter] data reflects how challenging the current conditions are to get deals done,” she added.
“Gaps in valuation expectation between buyers and sellers remained and higher interest rates have made financing deals difficult.
“In spite of the macroeconomic backdrop, dealmakers remain optimistic. There is undoubtedly pent up demand, with many poised to deploy capital when market conditions begin to stabilise and valuation gaps narrow.”
She added that the recovery would not be even, however, and more resilient industry sectors would be aligned with “megatrends” like energy transition, healthcare and technology.
A number of big takeovers have still been struck this year despite the downturn including Swedish private firm EQT Ventures’ £4.5bn swoop on vet pharma firm Dechra, and smaller deals had remained resilient, analysts said.
Ashwin Pillay, a senior associate at law firm Charles Russell Speechlys, said “The impact of these trends is felt the most in larger deals with, in our experience, a steady pipeline of transactions still being seen in the lower and mid-markets, and particularly in the Sports and Technology sectors, which are more resilient to the macroeconomic instability,” said
However, the deals flow has been some way short of the worst predictions of UK analysts last year. Fears had spread last year after foreign firms took advantage of a weak pound and the lingering effects of Brexit to launch a bargain hunt on UK plc.