How is the UK's M&A sector faring?

The UK investment sector witnessed another year of robust merger and acquisition (M&A) activity in 2023, with private equity playing a leading role in sponsoring deals worth nearly £1 billion, predominantly within the wealth management sector.

A new report from MarshBerry notes that this trend underscores an ongoing phase of consolidation that saw an exceptional number of transactions over the year. Notably, the investment banking arena also experienced significant consolidation, with some of the sector's most established mid-market entities either being acquired or merging.

The report also highlights a surge in foreign ownership, particularly from North America. This uptick in interest can be traced back to the post-COVID pandemic era, spotlighting the UK's pensions and investment markets as attractive venues for structural growth and investment opportunities.

Despite this, the volatility of the markets, compounded by rising interest rates and geopolitical tensions, tempered the growth of assets under management (AUM) and advice (AUA), leading to more conservative buyer attitudes and downward pressure on valuation multiples.

That said, a stabilisation in public markets by the end of 2023 appeared to revive sentiment, contributing to a record number of deals and maintaining strong momentum into 2024.

UK’s M&A trends in 2023

• Continued Rise in Deal Activity – the wealth management sector, particularly at the lower end of the market, has seen relentless consolidation, driving the deal count to new heights
• Pressure on Valuations – the increasing cost of capital and sluggish growth in AUM and AUA have led buyers to adopt a more cautious stance, affecting valuation multiples
• Dominance of Private Equity – private equity was involved in nearly every other deal in the sector, maintaining its significant influence on the market
• Growing Foreign Interest – there has been a notable rise in activity from overseas buyers, including North American private equity funds, which have shown a keen interest in UK wealth and asset managers

In terms of transaction volume, 2023 also set a record with 92 deals, a significant portion of which occurred at the smaller end of the market. The wealth management sector accounted for 82% of the total deal volume, with other sectors seeing varied levels of activity.

Private equity funds emerged as the primary buyers, with a marked increase in deals involving foreign entities, nearly doubling the count from previous years. The most substantial group of sellers were privately held companies, which attracted multiple consolidators, particularly in the wealth management sector.

Looking ahead, the landscape is set for further evolution with potential secondary private equity investments, ongoing interest from overseas buyers, and the possibility of consolidation among consolidators. The wealth management sector is also poised for continued transition towards institutional ownership, which will likely drive further industry restructuring and growth.

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