M&A in the U.K. Is Positive in the Post-Pandemic World

Mergers and acquisitions (M&A) and initial public offerings (IPO) activity continues to perform at a record-breaking pace in the U.K. with the surge being driven by several key factors.

First, the combination of increased dry powder in the market and low interest rates have led sponsors and corporates to find places where they can put their cash to work. Many have deployed it in assets that were greatly affected by the COVID-19 pandemic and recession that followed. U.S.-based buyers have approached U.K.-based sellers en masse to capitalize on these lower valuations and rebound opportunities. To add further fuel to the situation, concerns about potential capital gains tax (CGT) changes have influenced dealmakers to act and close their deals even quicker.

Second, environmental, social and corporate governance (ESG) continues to influence M&A activity as climate-reduction targets set at 2030 and 2050 have put the U.K. at the forefront of the issue and have inspired a myriad of Energy and Technology deals, with a specific focus around renewable energy.  

The pandemic has also triggered M&A growth in other ways — through buy-and-build private equity (PE) structures and Technology deals stemming from a new global reliance on digital transformation.  

Cross-border deal activity will continue to grow as companies look to expand their geographical reach, and Special Purpose Acquisition Companies (SPACs) will likely return — at last count 400+ SPACs are currently searching for targets.

Valuations are also at record highs as competition is fierce and bidders now need to know the asset prior to process. The competition for quality assets is intense as high levels of dry powder continues to push valuations and activity in the region. 

Booming sectors in the U.K. right now include TMT, Industrials and Healthcare, with Energy and Renewables recently experiencing newfound growth. Meanwhile sponsors have been investigating targets in Energy, Education and Health for the next big deal. 

Optimism abounds in the market

Activity is rebounding in the Real Estate sector via restructuring of undervalued assets and huge changes in Hotel, Retail and Office sectors. Industries impacted by the COVID-19 crisis — such as Consumer, Transportation and Real Estate — will see a pickup as economies reopen. As the reopening expands, the economy is likely to switch back to a services-led economy. 

The IPO pipeline is strong. There has been a pickup of IPO activity in 2021 due to private companies wanting to go public during an attractive stock-market revival. 

If the current M&A climate faces any challenges, it would be from either new variants of COVID-19 delaying deals, an increase in interest rates or both. Bidders may be becoming “hyper-sensitive” to any bad news or negative findings during due diligence, jeopardizing processes. 

Overall, the mood in the U.K. is very optimistic. Dealmakers have been busy all year in the most active M&A market ever, with investors keen to find quality assets. This is likely to remain over the next six months.

These are only some of the trends in the European, Middle Eastern and African region — as well as a global outlook — detailed in the newly published SS&C Intralinks Deal Flow Predictor for Q4 2021. Get your copy here.