Steve Ivermee, UKI Strategy and Transactions Leader at EY comments:
“Continuing economic and geopolitical headwinds meant the first quarter of 2023 saw subdued levels of M&A activity in the UK. In total, 356 inward, outward and domestic M&A deals completed during Q1, down year-on-year from 534 deals completed in Q1 2022.
“Digital transformation, portfolio rebalancing and ESG issues continue to be the key deal drivers. However, uncertainty about valuation, high interest rates and regulatory pushback mean we are likely to see an increase in small to mid-sized deals as CEOs use M&A to address strategic priorities, expand into new markets and fill capability gaps, rather than risk bigger deals that may not get over the line.
“Portfolio reshaping is likely to be a key theme for the rest of the year as companies re-evaluate their portfolios under new more challenged scenarios. We expect to see more firms look at restructuring and spin-off options to free up cash to finance investment in other areas of growth.
“Although the immediate M&A outlook looks challenging, private equity activity, which has been a major driver of M&A over the last few years, is expected to improve in the coming months with a rebound likely in the second half of 2023.
“Investors are likely to wait for more stable financial conditions to gain the confidence needed to give the green light on more transformational dealmaking.”