Dealmakers await rebound after election hits M&A
Published: 03:09 PM,Sep 10,2024 | EDITED : 07:09 PM,Sep 10,2024
The deals advisors in the financial district of London (known as the ‘City’) are gearing up for a rebound in activity in the closing months of the year after election uncertainty pushed mergers and acquisitions (M&A) to a four-year low in June, according to fresh figures last week.
The value of total deals involving UK firms as either targets or buyers, slumped to £11.8bn in the second quarter between April and June down from £13.5bn between January and March, according to figures from the Office for National Statistics.
Just 385 transactions were completed across the three months, with June’s total marking the lowest number of takeovers since the depths of the pandemic in 2020. The fall in dealmaking comes after two years of lacklustre appetite as rising interest rates have ramped up the cost of financing deals and inflation has affected valuations.
Private equity firms particularly have been plumped into a quiet period as a slide in valuation forces them to hold onto assets. While there have been signs of life this year, advisors said the election had weighed on appetite over the summer.
“The levels of UK mergers and acquisitions activity during the second quarter of 2024 are disappointing but not a surprise given the political uncertainty in the UK caused by the general election,” said Caroline Rae, a corporate partner at law firm Herbert Smith Freehills.
“However, we are cautiously optimistic that activity will pick up towards the end of the year as uncertainty over the economic outlook eases.” Other analysts were also bullish on the outlook for dealmaking in the coming months as firms look to complete on transactions ahead of the chancellor, Rachel Reeves’ budget in October.
“The focus now for business owners is the upcoming Autumn Budget and the looming threat of an increase in capital gains tax as sellers rush to get deals over the line,” said James Wild, head of M&A at consulting firm RSM UK. “As a result, we expect the real increase in deal activity to be in the second half of the year.” Global head of deals at PwC UK, Lucy Stapleton, said she was expecting “confidence to continue growing in the market with UK elections now concluded.” Pound surges: The pound is set to be one of the world’s top-performing major currencies this year amid expectations of “above trend growth” in the UK economy and slower interest rate cuts, according to Bank of America. The Wall Street titan said the pound is poised to hit $1.41 by the end of 2025, after hitting a 29-month high of $1.323 recently.
Stirling has jumped 3.2 per cent against the dollar so far this year as money markets bet on more gradual interest rate cuts from the Bank of England compared to the US Fed. Traders are betting that the Fed and European Central Bank will lower borrowing costs later this month. Growth has slowed in the world’s largest economy while the latest job figures also showed a rise in unemployment.
In contrast, the Bank of England is widely expected to hold its base rate at five per cent at it’s next meeting on 19 September after cutting rates for the first time since 2020 last month.
Bank of America estimated sterling would touch $1.35 by the end of this year as a possible tightening of the UK labour market gives policymakers reason to ease monetary policy more slowly. Markets are betting on at least three Fed and two European Central Bank rate cuts before the end of this year, and just one for the Bank of England.
The value of total deals involving UK firms as either targets or buyers, slumped to £11.8bn in the second quarter between April and June down from £13.5bn between January and March, according to figures from the Office for National Statistics.
Just 385 transactions were completed across the three months, with June’s total marking the lowest number of takeovers since the depths of the pandemic in 2020. The fall in dealmaking comes after two years of lacklustre appetite as rising interest rates have ramped up the cost of financing deals and inflation has affected valuations.
Private equity firms particularly have been plumped into a quiet period as a slide in valuation forces them to hold onto assets. While there have been signs of life this year, advisors said the election had weighed on appetite over the summer.
“The levels of UK mergers and acquisitions activity during the second quarter of 2024 are disappointing but not a surprise given the political uncertainty in the UK caused by the general election,” said Caroline Rae, a corporate partner at law firm Herbert Smith Freehills.
“However, we are cautiously optimistic that activity will pick up towards the end of the year as uncertainty over the economic outlook eases.” Other analysts were also bullish on the outlook for dealmaking in the coming months as firms look to complete on transactions ahead of the chancellor, Rachel Reeves’ budget in October.
“The focus now for business owners is the upcoming Autumn Budget and the looming threat of an increase in capital gains tax as sellers rush to get deals over the line,” said James Wild, head of M&A at consulting firm RSM UK. “As a result, we expect the real increase in deal activity to be in the second half of the year.” Global head of deals at PwC UK, Lucy Stapleton, said she was expecting “confidence to continue growing in the market with UK elections now concluded.” Pound surges: The pound is set to be one of the world’s top-performing major currencies this year amid expectations of “above trend growth” in the UK economy and slower interest rate cuts, according to Bank of America. The Wall Street titan said the pound is poised to hit $1.41 by the end of 2025, after hitting a 29-month high of $1.323 recently.
Stirling has jumped 3.2 per cent against the dollar so far this year as money markets bet on more gradual interest rate cuts from the Bank of England compared to the US Fed. Traders are betting that the Fed and European Central Bank will lower borrowing costs later this month. Growth has slowed in the world’s largest economy while the latest job figures also showed a rise in unemployment.
In contrast, the Bank of England is widely expected to hold its base rate at five per cent at it’s next meeting on 19 September after cutting rates for the first time since 2020 last month.
Bank of America estimated sterling would touch $1.35 by the end of this year as a possible tightening of the UK labour market gives policymakers reason to ease monetary policy more slowly. Markets are betting on at least three Fed and two European Central Bank rate cuts before the end of this year, and just one for the Bank of England.