Quarterly M&A statistics by the ONS reveal that mergers and acquisitions (M&A) in the UK in Q3 (July to September) 2023, which involved inward, outward and domestic activity, was down on the previous quarter.

Commenting on these statistics, RSM UK has stated that it believes that an impending general election next year is likely to stimulate activity as sellers look to get deals over the line from Q2 2024 and so get ahead of any changes in capital gains tax that may follow if a new government is formed.

The total combined number of cross-border and domestic M&A transactions involving a change in majority share ownership was 362 during the three months of Q3, a decrease from 479 the previous quarter. The value of domestic M&A (UK companies acquiring other UK companies) was £2.6bn in Q3 2023, £0.2bn lower than the previous quarter, but £0.1bn higher than Q3 2022.

The value of inward M&A (foreign companies acquiring UK companies) in Q3 2023 was £5.4bn, £0.7bn higher than the previous quarter, but significantly lower than Q3 2022 (£22.4bn). The total value of outward M&A (UK companies acquiring foreign companies) in Q3 2023 was £2.2bn, £0.2bn higher than in Q2 2023 but £6.1bn lower than Q3 2022.

Commenting on this, RSM UK partner and head of M&A, James Wild, said: “While today’s figures show a decline in deal volumes, transactions are happening and there are deals to be made, but they are taking longer to get over the finish line. Economic uncertainty is driving buyer caution and so the process requires more evidence that the business is performing. As a result, the market is polarised – there’s no shortage of interest for high quality businesses with good management, but less robust businesses are facing greater scrutiny.

“Whilst headwinds remain, economic indicators appear to be stabilising with inflation easing and interest rates peaking, which could stimulate deal activity as investors and buyers move forward with greater confidence in 2024. This, combined with the looming threat of a change in government and potential tax changes, means sellers will be keen to push ahead with exits, but could cause buyers to be more cautious. We have already started seeing an increase in new potential sale mandates as sellers explore their options, potentially prompted by the upcoming general election. We expect transaction numbers to return to pre-pandemic levels towards the second half of next year.”

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RSM UK director and private equity senior analyst, Jasper Van Heesch, concluded: “In the private equity market, investors still have a significant amount of capital to deploy including £60-70bn based in Europe and aimed at the mid market – this is close to an all-time high and there’s pressure to invest these funds. Private equity investors have found it difficult to source premium deals in the current economic environment, so when a good opportunity arises, this creates a lot of interest. We expect that same scenario to play out in 2024.”