By Merlin Piscitelli, Datasite CRO, EMEA
2022 will be remembered as a year of political disruption in the UK. We’ve had three prime ministers in two months and five prime ministers in the last six years. With Rishi Sunak now at the helm, there is hope for greater stability, as the UK navigates spiraling inflation, stagnating growth, slowing productivity, and geopolitical uncertainty.
Prime Minister Sunak revealed his economic vision for the UK with the delivery of the Autumn Statement by Chancellor Jeremy Hunt last month. Of the reforms announced in the so-called ‘mini-budget’, the government made clear it wants the country to be an innovative and competitive global financial centre, perhaps even the world’s next Silicon Valley. It will attempt to do this through a combination of regulatory reforms that encourage innovation, research and design (R&D) and investment.
This is good news for financial markets, including dealmakers, investors and corporate executives, who crave certainty so they can better plan for the future, including establishing long-term growth goals and reducing their risk exposure. Yet, while UK leadership has somewhat stabilised, there are still questions about the country’s economy and whether there additional market shocks are on the horizon. For M&A dealmakers or company leaders planning an initial public offering (IPO), understanding the advantages and limitations of government action is critical, especially since it takes between six to nine months to complete an M&A deal.
To understand what’s ahead, it’s first useful to understand how this year’s events have affected M&A in the UK, and whether they will continue to have an impact on activity.
The UK’s M&A market bounced back from the disruption caused by the pandemic, rising to record-breaking levels in 2021. A cooling-off period generally follows these growth spikes, and data from the Office for National Statistics certainly shows this was the case in 2022’s first half.
Interestingly, deals completed on Datasite tell a different story. Supporting over 13,000 deals annually, Datasite shows dealmakers are still active on a global scale. For example, for the first ten months of 2022, global M&A deals launched on Datasite are up 3% compared to the same period last year, with deals launched in EMEA and APAC up 13% and 19%, respectively. Specifically, M&A sale launches on Datasite have remained more buoyant year-over-year than publicly announced M&A activity. As many deals never get disclosed or disclosure is delayed, this difference suggests the M&A market is busier than the current news cycle suggests.
This may also mean dealmakers are optimistic that M&A will move forward once macro-economic conditions settle. And because Datasite sees deals at their inception, rather than announced, the spike in M&A deal launches on Datasite in August and an uptick of 9% in October, could mean increased announced activity, starting as early as 1Q 2023.
Still, interest rates are expected to rise again in December, creating tighter lending measures and likely higher deal financing costs. Additionally, there are concerns regarding overvaluations in some sectors, especially technology, with the market value of some recognised brands already declining significantly. Additionally, given the challenges around raising capital, many businesses may pivot in the coming months to focus on revenue generation or even survival.
Yet, the high rates of deal launches on Datasite’s platform suggest there is a growing pipeline of M&A transactions waiting to be completed, in anticipation of improving markets. The combination of new and relaunched deals could drive stronger deal volumes in 2023.
Global Banking & Finance Review
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