Mergers and acquisitions involving UK companies

Over the five-year period through 2025-26, the value of M&A activity involving UK companies is forecast to decline at a compound annual rate of 5.3%.

Deal making continued to decelerate as, compounded by dull economic growth, ongoing trade disputes, and related geopolitical tensions outweighing any indicative growth in sector fundamentals, corporate decision makers awaited a clearer image of life after Brexit, extending the transaction process thusly. Accordingly, the value of M&A activity involving UK companies declined by 24.8% in 2019-20. However, towards the tail-end of 2019-20, a marked decline in UK company deal making was accelerated by an economic shock associated with the COVID-19 (coronavirus) pandemic. The pandemic sent ripples through the global economy, with severe supply chain disturbance, stock market downturn, currency market sell-offs, and social disruption collectively resulting in an economic shock and lacklustre short-term growth prospects in most sectors of the UK and international economy. With the pandemic sending financial markets into a tailspin, fuelling fears of severe economic damage and forcing governments and central banks to impose some of the largest emergency stimulus measures since the financial crisis, the pace of deal making effectively grinded to a halt. According to financial technology and market insight company Refinitiv, only 131 deals involving a UK-based company were announced in March 2020, compared with 447 in March 2019, a decline of 70.7%.

Market disruption and economic downturn resulted in a subdued period for M&A activity, as corporate sentiment hovered near an all-time low. In 2020-21 alone, the value of M&A activity involving UK companies declined by a further 24% year-on-year to £62.0 billion, having not been lower since 2014-15 (£51.8 billion) and resulting in four consecutive years of double-digit percentage decline at least since the turn of the millennium. In 2021-22, the value of M&A activity involving UK companies rebounded by 146.9%, revived by acquisitions made by "secure" companies (i.e., those with resilient cash flow and a strong balance sheet), corporations with an appetite for risk, and those having benefitted from the reopening of the economy; the estimated value of M&A activity in 2021-22 (£147.3 billion) was most recently surpassed only by that in 2017-18 (£155.0 billion). In tandem with post-lockdown market recovery, dealmakers also pointed to the UK equity (stock) market trading at a significant valuation discount relative to global peers – close to a 30-year low – as stimulus to an intermittent boom in UK M&A activity; meanwhile, temporary access to low-cost debt, the "sterling remining in the doldrums", and international buyers viewing the UK market as an attractive jurisdiction for M&A activity due to relatively liberal takeover rules, were also noted as being key drivers of a spike in UK M&A activity.

Reversing seemingly intermittent prosperity in UK M&A activity, however, the value of M&A activity involving UK companies is anticipated to revert back into decline over 2022-23, falling by a forecast 41.4% on an annual basis to £89.8 billion. Surging inflation, tougher regulation and global consequences of the Russia-Ukraine conflict have given impetus to a slowdown in what was a rally in mergers and acquisitions. While, heading into 2022, private equity groups continued to deploy cash piles accumulated during the pandemic, the pace of overall M&A activity has started to slow as investors and executives asses tougher regulation on both sides of the Atlantic, soaring inflation and Russia's invasion of Ukraine. Dealmaking is not expected to decline to the low levels witnessed during the crux of the pandemic; however, at least through the near-term, significant market uncertainties are likely to see M&A activity restricted.