EMC ended 2023 with another completion - the sale of Falanx Cyber Security to Wavenet, concluding, not only a great year, but also our 35th year serving the business community across the region. As we look forward to this year, the landscape for mergers and acquisitions (M&A) in the UK appears poised for opportunities.
The reversal of 2023’s inflationary pressures, rising interest rates and falling consumer confidence, being replaced in 2024 by wage growth catching up with price increases, lowering of interest rates and increasing business, if not consumer, confidence, is expected to bring about a resurgence of deal making activity in 2024.
To understand this resurgence, particularly from a seller’s perspective, one only has to consider the effects that the macro-economic impacts had on deal activity during 2023.
Although it did not quite fall off a cliff, it was definitely quieter than in previous years. Acquisitions of UK targets were down by almost 20% from 2022’s ten-year high of almost 3,222 deals, as reported by Experian’s Market IQ. Experian has reported 2,780 acquisitions of UK targets in 2023. The backlog arising from fewer acquisitions happening will undoubtedly have built up a backlog of sellers wanting to exit. Match this with a, hopefully, more benign economic environment and a potential for a change in Government, and 2024 could see more opportunities for acquirers as sellers come to market.
On the other side of the coin buyers, particularly Private Equity, need to deploy capital.
For Private Equity, even though 2023 was shaping up to be a lower call on funds than in 2023, they still spent less than they raised. Funds are rewarded on investing and can be penalised for not doing so. With many funds sitting on the fence in 2023, this coming year will mean there is additional pressure to invest - and they have a lot of money to do that. The latest estimate, by S&P Global Market Intelligence, reported that Private Equity dry powder is 8% higher than in December 2022, at a staggering $2.59 trillion.
Similarly, for corporates who have built up cash reserves, the need to increase market share in low growth economies will create a resurgence of activity. The hope that consumer confidence will result in increased spending, will push corporate buyers back into the market. Over 2024 the cost of capital is expected to reduce with falling interest rates easing financial burdens on acquiring entities. This will catalyse an upswing in deal activity as companies find it more appealing to engage in strategic acquisitions.
Yet, amidst the opportunities, challenges emerge. The impact of geopolitical uncertainties, such as the current events in the shipping lanes of the Red Sea; the potential for political change, with 64 elections involving almost half of the world’s population going to the polls, including the UK and US; regulatory changes, and global economic tensions all continue to cast shadows over the M&A horizon. Those contemplating deals must carefully navigate this intricate landscape, conducting thorough due diligence to mitigate potential risks.
In conclusion, a bounce back in business confidence adds a layer of optimism to the M&A landscape. Companies, buoyed by positive economic sentiment, may be more willing to explore expansion through acquisitions. Confidence often translates to a willingness to take calculated risks, fostering a climate where strategic M&A decisions are seen as growth enablers rather than potential liabilities and the pent-up demand of willing sellers will, almost certainly, result in a positive year for 2024’s M&A market.
At EMC, we are already seeing an increase in activity, with more business owners coming in to discuss their succession plans and exits and more buyers seeking opportunities. If you would like to know what the future could have in store for you, we would be delighted to have a confidential discussion to help you understand your options.
Michael Pay is co-founder of EMC Corporate Finance
www.emcltd.co.uk
