UK Public M and A Update - 2022 Review
30 January 2023
30 January 2023
War returned to Europe in 2022 and continues into 2023 with little respite for those affected. The United Kingdom witnessed the death of its longest-serving monarch, Queen Elizabeth II, at around the same time as witnessing one of its shortest prime ministerial reigns in recent history. The Truss/Kwarteng 'mini-budget' in September 2022 unleashed a period of chaos in the financial markets, with a significant impact on the pensions industry and increasing borrowing costs for home-owners who were seeking to re-mortgage at that time.
Although generally well-received, the appointment of Jeremy Hunt to replace Kwasi Kwarteng as chancellor, was not enough to save Liz Truss’s premiership and she resigned shortly thereafter. The anointing of Rishi Sunak as leader of the Conservative Party has brought a degree of stability to government though significant challenges await him: increased interest rates, high inflation, a cost of living crisis at home and ongoing war in Europe to name but a few.
To coin a phrase that has often been repeated lately, 2022 was very much a year of two halves. It started in a similar vein to 2021, which was a year of very significant M&A activity, with a similar number of announced bids in Q1 2022 as in Q1 2021. Although the Russian invasion of Ukraine started to put a dampener on activity, it was over the summer that the foot came off the pedal as central banks around the world responded to rising inflation by raising interest rates from what had been, for a number of countries and regions, a sustained period of historically low rates. The increased borrowing costs and, in the UK, the period of political instability in September and October, resulted in a marked reduction in M&A activity during the second half of the year, to a level even below that which immediately followed the outbreak of the COVID-19 pandemic in 2020.
One of the primary drivers for a return to higher activity levels in 2023 will inevitably be stability in the lending market. Although purchasers have accepted a structurally higher cost of capital for the foreseeable future, it is the lack of certainty over short to medium term interest rates that creates challenges to calculating likely returns on investment, and ultimately deters investments from being made. That said, there remains a significant amount of private capital available to be deployed and it is surely only a matter of time until investors have sufficient confidence in the debt markets for deal-making to ramp up again. Increased political and market stability should also result in increased confidence in the boardroom and, with corporates remaining relatively well-capitalised following fundraisings in 2020 and 2021, strategic M&A opportunities may also be on the horizon in 2023.
Finally, to give our usual shameless plug, our roles on announced bids in Q4 include advising:
We hope you enjoy the insights and analysis in this publication and, as ever, we would be very happy to discuss any of the topics mentioned.
With very best wishes,
The Ashurst UK Public M&A Team