UK Financial Services M&A volume hit a ten-year high in H1 2023, but overall deal value fell year-on-year

The UK financial services industry reported a 10-year M&A volume high of 160 deals in the first half of 2023, up from 138 in the same period in 2022 (a 16% rise), according to EY’s latest financial services M&A analysis.

However, total disclosed deal value for the period fell from £11.5bn in the first half of 2022 to £4.7bn in the first half of 2023, representing the lowest level of activity by value since the start of the pandemic.

Sector specific M&A activity breakdown across UK’s financial markets:

• The number of UK insurance deals rose from 48 in H1 2022 to 54 in H1 2023, however, the total publicly disclosed deal value fell from £3.8bn to £16m year-on-year.
• In the UK banking sector, there were 39 deals in H1 2023, up from 35 in H1 2022, however, the total publicly disclosed deal value fell from £4.0bn to £3.2bn year-on-year.
• In the UK wealth and asset on management industry, the number of deals rose from 55 in H1 2022 to 67 in H1 2023, however, the total publicly disclosed deal value fell from £3.7bn to £1.5bn year-on-year.

Tom Groom, UK Financial Services Strategy and Transactions Leader at EY said, “UK financial services M&A activity recorded a ten-year high in the number of transactions in the first half of 2023, demonstrating firms’ strong appetite for deal-making in the wake of the pandemic.

“However, economic headwinds at the start of the year – such as rising interest rates and inflationary pressures – caused many lenders to pull back from financing large deals, and the value of M&A activity is now less than half of where it stood during the same period last year.”

While the number of non-UK firms acquiring UK targets increased to 35 in H1 2023 from 30 in H1 2022, total value fell from £3.0bn in H1 2022 to £0.2bn in H1 2023. As for UK firms acquiring overseas targets, this fell from 34 deals in H1 2022 to 28 deals in H1 2022, with a lower overall deal value of £2.8bn in H1 2023, down from £4.9bn in H1 2022.

Groom added, “The macroeconomic environment this year has undoubtedly impacted deal value, with a continued reduction in private equity involvement in particular.

“However, the key drivers of M&A – being growth, innovation and synergies between businesses – remain, and as firms develop approaches to deliver M&A in this higher rate environment, we anticipate a return to higher deal values.”