Skip to main content

Mergers and acquisitions (M&A) market outlook

Your latest deals market snapshot

At Deloitte, we know that every choice matters. And when it comes to bringing organisations together through mergers and acquisitions (M&A), there’s no time to second-guess. Discover the key global and UK M&A trends across industries in our 2023 M&A outlook videos and articles, as well as how hot topics, such as inflation, digitalisation and Environmental, Social and Governance (ESG), may affect M&A deals.

Watch our video updates | M&A market outlook – Q1 2023

Our 2023 M&A outlook videos consider how the macroeconomic environment may affect M&A deals and focus on current M&A trends in the Business Services and Industrials sectors, as well as Performance Improvement and investment in Sports M&A.

Business Services | Q1 2023 update

Given the uncertain macroeconomic environment, Hannah Rock – Business Services M&A Advisory Director, analyses recent Business Services deal activity. Hannah explores three key activity drivers, including ESG, as COP27 focuses attention on sustainability. Hannah looks to 2023 and considers how different factors will impact deal activity.

Hi I'm Hannah, a Director in Deloitte’s Business Services M&A Advisory team, and I'm here to tell you about our 2023 M&A outlook for Business Services.

[00:14 – 00:43 What’s been going on?]

We’ve seen post-pandemic deal activity reach an all-time high in 2021, which continued into H1 this year.

With the increasing market uncertainty, there was close to a 30% drop in Q3 based on the same period last year, which we are continuing to see into Q4. Initially, this may seem significant, but not when you consider the heights it’s dropped from; it’s still healthy compared to previous levels.

And while investors are taking time to evaluate assets, overall, 2022 is expected to have seen one of the highest levels of M&A activity in the last decade.

[00:44 – 02:14 Key themes driving market activity]

So, what’s driving market activity?

Businesses with an ESG angle continue to demand a premium and COP27 is focussing attention on sustainability once again.

Education services are also in the limelight due to continued reporting about attainment gaps. Especially those supporting disadvantaged children as demand increases with the rising cost of living.

Rising interest rates and market volatility have led investors to focus on quality assets and we are seeing closer scrutiny of key metrics, driven by their need for cash flow security and revenue visibility.

This has led more attention towards, firstly, administration services, such as pensions, offshore trust services and fund admin services, as all provide long-term revenue visibility and market growth, thanks to structural and regulatory changes.

Secondly, tech-enabled services across the education, HR and legal sectors offer subscriptions-based revenue streams and potentially higher margins.

Finally, essential infrastructure services like connectivity solutions have consistent demand and contracted revenues.

[01:43 – 02:15 Attracting investment]

Something that is continuing to gain more attention from international investors is UK assets with material global footprints, and this is helped by our weak currency.

With less leverage, principals and advisers must be more creative when bridging funding gaps and valuation expectations. This gap is the most material change when executing deals in the current environment, as the appetite to transact from both buyers and sellers remains.

Investors may have a lot of capital, but they’re taking their time deploying it. Therefore, early conversations with investors that build relationships over an extended period play an increasingly important part in securing M&A transactions.

[02:16 – 02:51 Our predictions for 2023]

Now, let’s look to 2023.

Next year we anticipate more trade deals, including PE-backed trade doing bolt-ons and corporate ‘tidy-ups’. The flight to quality will continue for investors.

The risk of capital gains tax rising, as highlighted by the Office of Tax Simplification, could motivate owners to sell sooner.

As suggested by current polling, the likelihood of a labour government at the next election is also expected to encourage sellers.

Finally, recessionary environments typically generate pricing pressures. But this will be partially offset by investors having a clearer view of the underlying profitability of assets post-COVID.

Strong pricing will be maintained for high-quality, resilient assets.

[02:52 – 03:05 Get in touch]

Please do get in touch to find out how the current market could impact your organisation's 2023 M&A agenda.

Industrials | Q1 2023 update

Andrew Rogers - Transaction Services Partner, provides insight into what’s driving the Industrials sector’s market activity, with energy transition considered the biggest theme. Andrew highlights the importance of disruptive technology and strong supply chains in driving M&A activity in 2023.

Hello, I'm Andrew Rogers, a Transaction Services Partner in Deloitte's Energy, Resources and Industrials team.

And I am here to talk to you about our 2023 outlook for M&A in the Industrials sector.

[00:17 – 01:23 Industrials M&A overview]

So, what’s been going on?

Well, since the start of 2021, we have seen an increase in M&A activity that has continued into the first half of this year.

During this time, the Energy, Resources and Industrials sector saw the second highest level of global deal activity, closely behind Technology, Media and Telecoms. From an Industrials sector perspective, this was manifested in high levels of quarterly deal volumes in FY21, with this momentum continuing into the first half of this year.

So, let's look at what's driving M&A activity.

While M&A activity in Q3 and Q4 this year has slowed, there remains strong interest from both our corporate and private equity clients in doing deals in the sector.

Additionally, overseas interest in assets across Europe and especially in the UK has grown. This is partly due to sterling trading below previous averages, which means high-quality industrial businesses are available at a lower entry value.

We expect deal activity across the industrial sector to pick up again from Q2 next year as a result of a combination of improved access to the debt markets, pent up demand and a number of key themes.

[01:24 – 02:08 Energy transition]

The first key theme and probably the biggest is energy transition.

The current energy crisis has not only hit consumers hard, but has also driven a massive rise in costs for many industrial processes, accelerating many businesses plans to reduce their own carbon footprint as part of their ESG agenda.

As many industrial processes consume a lot of energy, our clients in this sector are looking at ways to move from fossil fuels to cleaner energy.

This is likely to lead to portfolio reviews, resulting in divestments where the opportunity to reduce the carbon footprint is more limited.

Further, we anticipate acquisition growth from those looking to invest in new technologies and ESG growth areas such as renewables, carbon capture, hydrogen and battery storage.

[02:09 - 02:34 The role of disruptive technology]

The next major theme is disruptive technology.

We are expecting an uptick in the number of clients looking to invest in robotics, AI and automation. As well as other digital advances and connectivity, all linked to Industry 4.0 and the Internet of Things, to ensure they are well-placed to drive long term transformation.

Businesses could also pursue cross-sector alliances in tech and software to gain access to new markets and explore new revenue models.

[02:35 - 02:55 Supply chain restructuring]

Finally, companies are looking to strengthen their supply chain following disruption seen over the last few years, which has resulted in long lead times for critical components creating uncertainty and delays in production.

We are already seeing an increase in re-shoring and near-shoring and expect an increase in industrials businesses bringing suppliers in-house.

[02:56 – 03:22 Get in touch]

So, to sum up, we expect M&A activity in the sector to pick up in 2023 compared to the end of this year.

If you would like more information on the sector and how we at Deloitte are supporting our clients in the current market environment, please do get in touch.

Performance Improvement | Q1 2023 update

With lenders deploying record amounts of capital, Louise Harvey - Performance Improvement M&A Director, looks at why activity levels in 2022 have been a tale of two halves. Louise examines what we can expect in 2023, especially given the huge amount of dry powder available in the market.

Hi, I'm Louise Harvey, and I sit in our debt advisory practice at Deloitte and work with financial sponsors helping them raise acquisition finance to support their investments, upon entry, during ownership and at exit.

And I'm here to tell you about the 2023 outlook in the capital markets.

[00:21 – 01:07 What’s been going on?]

But let's have a quick look back first. The influx of capital into the private credit market has completely transformed how borrowers finance themselves.

As the number of lenders grew, fierce competition has ultimately benefited borrowers. Financing options became more varied, flexible, and bespoke, driving leverage to dizzying heights at the back end of 2021.

There has been a focus on financial engineering through subscription lines, NAV facilities and GP financing, all helping drive strong returns for shareholders.

This year has been a tale of two halves, with the first six months continuing the trend from last year as lenders deployed record amounts of capital.

However, today the market conditions for raising finance is the hardest it’s been for a decade.

So, what’s driving market activity?

[01:08 – 02:02 What's driving market activity?]

Macroeconomic uncertainty and inflation have led to a rise in interest rates, which has depressed debt capacity by, on average, a turn to a turn and a half of leverage for every borrower. Our hedging team are extremely busy protecting borrowers from rising interest rates by implementing hedging instruments with competitive charges.

Given the last 18 months of record deployment, many lenders do not need to do anymore this year. There's also a nervousness around fund-raising, with limited partners being more considerate about choosing their manager.

However, that's not to say there isn't a considerable amount of dry powder out there trying to find a home. But the bar for lending has never been higher, so you can't get away with cutting corners or driving unreasonable and overly aggressive processes.

Deals are still being done, both M&A-driven and maturity-led re-financing, but it remains tough out there. What can we expect in 2023?

[02:03 – 03:06 What can we expect in 2023?]

We anticipate renewed appetite from lenders for new opportunities – companies will be more data-rich regarding their past performance and proven ability to sustain increased base rates and inflation.

Revised budgets will also be set, cash and performance improvement activities will be underway, and short-term uncertainty will become more of a long-term reality.

Of course, the diligence threshold will remain high, with specific sectors needing to work harder to find liquidity.

And while some lenders will continue to try and tighten terms, we're optimistic that conditions will improve for borrowers if they are properly prepared and they’ll be able to unlock the huge amount of dry powder out there, rebalance the capital structure and unlock their growth potential.

If you want to discuss how this may impact your organisation, please do get in touch.

Sports | Q1 2023 update

With over 200 M&A transactions completed globally across the Sports sector in the first ten months of 2022, Sam Boor – Director, and Theo Ajadi – Manager, in Sports M&A Advisory and Transaction Support, discuss the impact of high investor interest. They discuss which regions are transacting and provide their predictions for 2023.

Hi, I’m Sam Boor, Head of Sports M&A Advisory and Transaction Support at Deloitte.

And I am Theo Ajadi, Manager in Sports M&A Advisory and Transaction Support at Deloitte.

We’re here to bring you up to speed on the 2023 outlook for the M&A sports market.

[00:20 – 01:06 2022 market overview]

Overall in 2022, investors showed strong interest in sports with around 200 M&A transactions completed across the industry in the first 10 months of the year.

Around 10% of these transactions involved larger entities, such as competitions, leagues and governing bodies. While about 40% of transactions related to individual teams or clubs.

We’ve seen high investor interest in sports teams, leagues, governing bodies, rights holders and sports technology, in particular. We expect that these areas will continue to provide a breadth of investment opportunities in the coming months.

It is evident that as each year passes, sport is increasingly considered an asset class that is too large for institutional investors to ignore, but with so many sports and types of organisations it is not a straightforward sector to execute in.

[01:07 – 01:38 What’s driving market activity?]

So, what’s driving market activity?

We’re seeing a growing M&A market with strong tailwinds and a proliferation of liquid, sophisticated pools of capital.

To put it simply, investor interest in sports is at an all-time high and organisations across the industry are turning to private capital to fund their next phase of growth.

A number of high-profile transactions have taken place in recent months and we’re likely to see a wave of investment into premium properties still to come. Assets across the sports industry are offering investors a lower risk profile and more substantial overall commercial revenue.

[01:39 – 02:25 Where is the interest coming from?]

And where has the interest been coming from?

Just over half of sport M&A transactions in 2022 have involved European sport organisations, compared

to around a quarter which have involved US-based assets. And while Europe may have seen a greater volume of sport M&A, US organisations have executed higher-value deals.

Twice as many deals were made in larger US sports entities such as competitions, leagues, and governing bodies, in comparison to larger European organisations.

However, 80% of team-level deals were made in Europe and we’ve seen that US investment into European football clubs has been a key focus. Over two-thirds of investments into the ‘big five’ leagues over the past five years have come from the US.

Much of this activity has been driven by investors’ belief that European clubs are undervalued commercially.

[02:26 – 03:00 Our predictions for 2023]

So, what will happen in the next year?

In the coming months, we expect to see investors continuing to consolidate assets into complementary portfolios. Women’s sports will likely provide a compelling growth opportunity.

As more capital flows into the sports sector, sustainable investment models that balance financial and operational viability with on-pitch spending are front and centre and gaining traction.

There’s a crucial need for responsible investment and governance in sports. Investors must enter the sector in a conscious and risk-focused manner, considering all the factors that may impact their future ability to be responsible custodians of sport.

03:01 – 03:15 Get in touch]

If you would like to find out more, please do get in touch.

Macro perspective | Q1 2023 update

Despite volatile stock markets and rising interest rates restraining markets, Fenton Burgin – Head of Advisory Corporate Finance, provides key insights on why we should still be confident in 2023 deal levels. Fenton discusses why we’ll see a big pivot into the mid-market and which sectors we’ll see strong buyer interest.

Welcome to our 2023 M&A market outlook, I’m Fenton Burgin, Deloitte UK’s Head of Corporate Finance.

[00:12 – 00:51 Macroeconomic factors at play]

Volatile stock markets, rising interest rates, inflation concerns and geo-political uncertainty all restrained M&A markets in the last quarter of 2022 and will result in lower deal volumes and valuations into the New Year.

Higher financing costs are adding to investors’ pain and impacting buyers’ ability to finance deals. With banks sitting on over 70 billion dollars of ‘stuck syndications', deals underwritten at ultra-low rates but not yet sold down.

We see the multi-billion-dollar M&A market looking set to remain subdued in the first quarter.

[00:52 – 01:40 Looking at the bigger picture]

Despite these headwinds, we predict that 2023 will be a strong year for M&A activity in the UK. Yes, deal volumes and valuations will likely fall by about 15% on average from 2021’s record levels. But this isn’t the same as the 2008 to 2009 post Global Financial Crisis recession when bank liquidity all but completely dried up.

2023 will be back to historical averages in terms of deal volumes. Of course, much will depend on when investors judge that inflation and interest rates have peaked. But as soon as that happens we anticipate a rapid and significant switch out of defensive cash strategies into M&A.

[01:41 – 02:51 Three key factors provide confidence for 2023]

Three key factors underpin our confidence that the first half of 2023 will see ongoing mid-market M&A deals completing.

First, banks and direct lenders remain open for business and well capitalised as a result of institutional investors, insurance and pension companies continuing to pump prime private credit funds in a higher inflationary world where it’s one of the few asset classes generating positive real returns.

Secondly, private equity funds have raised record levels of £1.7 trillion pounds of so-called dry powder - capital committed but yet to be invested.

In the short term, some investors will pause activity whilst valuations adjust to the new market dynamics, but we see mounting pressure to invest through the cycle ultimately driving mid-market M&A activity in 2023.

Thirdly, UK plc has a strong balance sheet with many companies having taken the opportunity to refinance at ultra-low rates through the pandemic.

[02:52 – 03:59 Where will we see activity and interest?]

Digital agendas, supply chain diversification, energy independence and ESG priorities will all continue to drive M&A in 2023.

Where’s the bulk of the activity likely to be?

We see a big pivot into the mid-market with more investors looking at portfolio ‘bolt on’ and special situations deals. That’s good news for private UK companies looking to raise equity or to sell ahead of tax changes.

Where are we seeing strong ongoing buyer interest?

Today, there’s a premium for companies demonstrating profitable growth and cashflow resilience. Technology, particularly, digital, energy and natural resources, real estate, financial services, industrials, business services and healthcare are all sectors in the spotlight.

Separately, with sterling continuing to trade below long-term averages, a range of cash rich, sophisticated, overseas buyers continue to see the UK as an attractive option.

[04:00 – 04:35 Get in touch]

So our advice to M&A investors and companies is to look through the inevitable ongoing short-term market volatility and be prepared to capitalise on the opportunities.

Thank you for listening, I look forward to talking to you in our next edition and do get in touch if you want to discuss how the macro-economic environment could impact your organisation's 2023 M&A agenda.

Watch our videos | M&A market outlook – 2022

What's been going on in the M&A market so far this year? With ongoing market uncertainty, our 2022 updates offer a macro perspective and discuss key M&A trends and drivers of M&A activity in the Consumer, FS, and TMT sectors.

Did you find this useful?

Thanks for your feedback

If you would like to help improve further, please complete a 3-minute survey