Mergers and acquisitions in the UK have slumped back to pre-pandemic levels this year as dealmakers play the waiting game amid wild swings on the markets, official figures have revealed.
A total of 459 domestic and cross-border deals were completed in the third quarter of the year, nine down on the previous quarter and 159 fewer than the same period last year, when buyers put stored up ‘dry powder’ to use in a post-pandemic deal frenzy, figures from the Office for National Statistics showed today.
Markets have been sent into a spin this year by the impact of war in Ukraine and soaring inflation, which has sparked sharp drop-offs in valuations. Analysts said the ONS figures showed buyers and sellers were sitting on their hands and waiting for prices to settle.
“The current challenging pricing environment is holding back deals, as many sellers may be struggling to let go of last year’s record valuations while buyers are waiting to acquire at repriced levels,” said Steve Ivermee, UKI Strategy and Transactions Leader at EY.
“Tighter credit markets are also having an impact on larger cap deals as buyers struggle to secure funding, prompting more caution when it comes to acquisitions.”
The value of deals struck by foreign buyers jumped to £25bn however, as a bargain hunt of cheap British firms continues.
The total value of inward mergers and acquisitions in the third quarter of the year jumped by £13.9bn on the previous quarter and came in at double the £12.5bn notched in the same quarter of the year, the ONS found.
The figure points to the appeal of big British firms as a weaker pound and subdued post-Brexit valuations allow buyers to snap up British PLC on the cheap.
Robin Johnson, partner and co-chair of Eversheds Sutherland’s cross border M&A team, said UK firms were proving a tempting prospect to Stateside buyers.
“Valuations between the US and Europe are out of sync, primarily driven by currency fluctuations which means an acquisition in Europe by a US corporate is cheaper this year than last,” he told City A.M.
“US corporates are also seeing beyond the end of the Ukrainian conflict, whatever the end game is, and are recognising that a 21st Marshall plan may be required for Eastern Europe.”
ONS officials said the figures in the third quarter of the year had been buoyed by two headlines defence deals in the £6.3bn acquisition of Meggitt by American firm Parker Hannifin, and the £2.6bn takeover of Ultra Electronics by private equity firm Advent International.
The value of domestic M&A – UK firms buying others – meanwhile fell to £2.6bn, down £0.7bn on the second quarter and £500m lower than the same period last year.