According to 78% of UK dealmakers who took part in management consultant CIL’s Investment 360 Index survey, mergers and acquisitions (M&A) activity should improve over the coming months. The survey polled private equity investors, management teams, corporate finance providers and business advisors.
The majority (84%) believe that deal activity is currently low, compared with 35% at the same time last year.
The M&A environment has been weighed down by inflation, rising interest rates, the high cost of capital, tightening credit conditions and macroeconomic uncertainty.
The UK government’s 2% inflation target has been out of reach since 2021 but the Bank of England expects this to be achieved by early 2025.
If inflation takes three to five years to come down to the target, businesses and consumers will need to adjust to higher borrowing costs. Such an environment will have an impact on leverage, asset prices and consumer spending.
Dealmakers expect the improvement in the M&A market to be gradual.
”The M&A community is, in general, more concerned about the impact of capital gains tax changes than corporation tax,” says Alex Marshall, senior partner at CIL.
“Corporation tax has been weaponised in many countries in pursuit of corporate investment; bringing the UK closer in line with the G7 is a responsible move that hasn’t had much M&A market impact.”
