Saturday, 15 March 2025
The UK’s mergers and acquisitions (M&A) activity declined in the fourth quarter of 2024, reflecting a slowdown in overall deal volume, particularly in cross-border transactions. The total number of completed M&A transactions involving UK companies fell to 402, down from 464 in Q3 2024, marking a noticeable dip in activity. Monthly figures further illustrate this downward trend, with 186 deals in October, 151 in November, and just 65 transactions in December. This decline signals a cautious approach from investors amid economic uncertainties, financing constraints, and high borrowing costs.
Despite the overall slowdown, domestic M&A transactions—where UK companies acquire other UK-based businesses—saw a significant rise in value. The total worth of these deals surged to £8.6 billion in Q4 2024, a sharp increase of £6.7 billion compared to Q3 2024 (£1.9 billion). This is the highest quarterly value since Q2 2021, indicating that domestic businesses are focusing on strategic acquisitions within the UK market rather than expanding abroad.
Two major domestic acquisitions contributed to this surge: Nationwide Building Society’s acquisition of Virgin Money UK Plc and Barratt Developments Plc’s takeover of Redrow Plc. These high-profile deals highlight continued confidence in the UK financial and real estate sectors, despite broader economic challenges. The rise in domestic transactions suggests that businesses are leveraging consolidation opportunities and looking to strengthen their market positions in a competitive landscape.
Decline in Outward and Inward M&A Activity
While domestic M&A showed resilience, cross-border transactions involving UK companies declined significantly. Outward M&A, which includes UK companies acquiring foreign businesses, saw a drop to £1.4 billion in Q4 2024, a £2.5 billion decrease from Q3 2024 (£3.9 billion). This marks the lowest level of outward investment since Q3 2013, indicating a slowdown in international expansion plans by UK firms.
The decrease in outward M&A can be attributed to global economic uncertainties, currency fluctuations, and higher costs associated with overseas acquisitions. Many UK companies have opted to prioritize stability within their domestic operations rather than pursue riskier international deals. The combination of inflationary pressures, geopolitical tensions, and fluctuating interest rates has contributed to this more conservative investment approach.
Similarly, inward M&A activity, which involves foreign companies acquiring UK businesses, also experienced a sharp decline. The total value of these transactions fell to £4.5 billion in Q4 2024, a significant £5.9 billion drop from Q3 2024 (£10.4 billion). Foreign investors have become increasingly cautious about entering the UK market due to uncertainty surrounding economic growth, regulatory changes, and ongoing financial market volatility.
The slowdown in inward M&A suggests that the UK is facing stronger competition from other global markets in attracting foreign investment. While the UK remains a key destination for international business, investors are carefully assessing market stability, taxation policies, and long-term growth prospects before committing to large-scale acquisitions.
Market Conditions and Business Sentiment
The Bank of England’s quarterly business report provided further insights into the investment landscape. The report indicated that business investment intentions remained weak, with many companies adopting a wait-and-see approach due to ongoing economic uncertainties and financing challenges. While some firms are looking to increase investment in 2025, the majority remain cautious, particularly in sectors affected by high capital expenditure costs, limited access to credit, and squeezed profit margins.
Larger corporations continue to have better access to financing, as banks compete to lend to financially stable, creditworthy businesses. However, small and medium-sized enterprises (SMEs) are struggling to secure funding, often turning to secondary lenders or alternative financing options. Startups and early-stage companies face even greater challenges, as many do not meet the stringent credit criteria set by major banks.
Despite these headwinds, some sectors have demonstrated resilience, particularly in financial services and real estate, as evidenced by the major domestic M&A deals in Q4. While businesses remain cautious, there is potential for an investment rebound in 2025, particularly if economic conditions improve and financing becomes more accessible.
Outlook for 2025
Looking ahead, the UK’s M&A landscape will likely be shaped by macroeconomic trends, including interest rate movements, investor sentiment, and global market stability. While domestic transactions have shown strength, the slowdown in cross-border M&A raises concerns about the UK’s attractiveness as an investment destination. The decline in foreign acquisitions of UK businesses suggests that investors are closely monitoring post-Brexit economic policies, regulatory developments, and overall market stability before committing to deals.
If economic conditions improve in 2025, the volume of transactions could see a rebound, particularly in sectors that have demonstrated strong underlying fundamentals. However, higher financing costs, inflationary pressures, and geopolitical uncertainties will remain key factors influencing investment decisions.
While some businesses are seizing M&A opportunities to strengthen their market positions, others are adopting a more cautious approach, delaying major acquisitions until economic conditions become more favorable. The balance between risk and opportunity will determine how the UK’s M&A activity evolves in the coming quarters.
Source: ONS
