The UK saw 3,628 deals across 2023, compared to 4,362 the previous year. The 17% decline in the UK is almost triple the rate of the global fall, which was 6% over the same period.
The second half of 2023 also saw a drop in deal volume of almost 600 deals compared to the first half of the year. The number of deals in H2 2023 is the second lowest of any half in the past five years, following the first half of 2020, which was affected by the COVID-19 pandemic.
The total deal value for the year was £88bn, a 41% decrease compared to the £150bn deal value in 2022.
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Lucy Stapleton, head of deals at PwC UK, said despite the challenging nature of the macroeconomic environment, conditions are stabilising due to falling inflation and steady interest rates.
“There is still an appetite for deals – our recent CEO Survey shows more than half of UK CEOs expect to make at least one major acquisition in the next three years and that the UK is the top investment target for US CEOs, while also becoming an increasingly popular place to invest for Chinese businesses,” she said.
“We expect the most robust areas of the market, underpinned by societal megatrends, will continue to drive deal activity such as healthcare while the fast pace of developments in AI and net zero will be key drivers for dealmakers.”
Sector trends
The technology, media and communications sector saw the most activity of any sector for 2023, with 955 deals, accounting for just over a quarter of total deal output for the year.
Automotive followed with 899 deals and saw the most deal activity for the second half of the year with 390 deals.
In value terms, the energy, utilities and resources sector saw the highest number in 2023, with deals worth a total £18bn. However, deal values for the sector are down 24% compared to 2022, which saw £24bn worth.
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Financial services followed with the second highest deal value of just under £18bn. This was a 51% decrease compared to 2022. Health industries placed third in deal value, subverting the trend with an 80% rise compared to 2022.
Tim Allen, deals industries and international leader at PwC UK, said: “We are seeing cautious optimism about the deal environment with dealmakers showing increasing confidence after the recent economic shocks that have affected the M&A market.
“Companies needing to add new technology capabilities, such as generative AI, are driving deal volumes in the technology sector whilst energy transition across the board is supporting activity in the energy, utilities and resources sector. The healthcare industry has also proven resilient.
“With more than half of UK organisations saying they view transactions as the best way to keep up with market changes, we expect to see companies making strategic deals to keep their businesses viable.”
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Meanwhile, the number of deals involving private equity reached its highest level at 42%, up 5% compared to the previous year and 14% from 2018.
Hugh Lloyd Ellis, private equity leader at PwC UK, said: “With stability returning to the investing environment, significant dry powder and increased pressure from limited partners to return capital, many fundamentals point towards more dealmaking in 2024.
“However, with the higher cost of capital, the ability to generate satisfactory returns will mean deals will have to have a robust view on value creation potential to justify valuations.”
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