Peel Hunt M&A Monthly - H1 2023

At the start of the year, the consensus expectation was that – after a very subdued H2 2022 – UK takeover activity would remain limited in Q1 and start to tick up in Q2, before accelerating through Q3. It was further anticipated that, during 2023, private equity would arrive at the doorstep of UK plc, ready to deploy their significant dry powder and take advantage of attractive valuations in the public markets, while private M&A volumes were down.

At the conclusion of Q2, it is clear that UK takeover activity has rebounded to an extent (by volume, if not by value) and private equity interest in listed companies has returned, but perhaps not with the conviction that many anticipated. Persistent inflation and rising interest rates with a steadier anticipated reversion from forecast peak have set a more cautious tone with target rates of return harder to achieve, and debt financing more challenging to secure.

Against this backdrop, it has been unsurprising that a large majority of bid activity in 2023 to date has been focused on the mid/small segment of the market. Smaller cheques are easier to write, and institutional shareholders of many smaller listed companies currently welcome the full liquidity event that a cash offer provides, where the alternative is to be trapped in a sub-scale, illiquid stock while trying to find other sources of capital to fund redemptions as outflows from UK equities continue.

With private equity not yet awakened and there being willing vendors of smaller (but still good quality) UK companies, there is a clear opportunity for strategic corporate bidders to act. While some demand will come from overseas companies, there is even greater scope for front-footed UK consolidators to take advantage of the current market dynamics and acquire their smaller peers, build scale, drive efficiencies and accelerate growth, creating larger, more liquid investment opportunities that attract institutional capital and which are able to thrive on the UK equity markets.

Despite current market conditions, Peel Hunt has acted in a financial advisory capacity on 20%  of all UK takeovers so far this year, giving us and our clients clear sight of the drivers behind the  next phase of M&A activity across UK plc.


View the full M&A monthly here.