Deals market rebounding in the ‘new normal’
In the previous edition of The Business, we noted some of the headwinds – economic, political, and otherwise – having cooled the deals market over the summer of 2023.
As we head towards the end of the year, the picture is very different. Deal activity across sectors has increased dramatically and shows no signs of letting up. The pipeline of transactions indicates a solid resurgence of completions to come in the first half of 2024. Some of that is a release of the backlog, those with the luxury of time having decided that 2023 was not the year to launch a process. But life must go on, and with confidence returning in the medium-term outlook for inflation and interest rates, a new equilibrium is beginning to emerge.
Private equity, which was particularly subdued in late 2022 and early 2023, is returning as uncertainty reduces and deals are recalibrated. For some vendors, this has meant adjusting expectations on value. On the flipside, those emerging from recent challenges with solid financials are commanding premiums in competitive processes. We are seeing inflows of capital from the US, Europe and the Far East and, as we predicted, energy and infrastructure assets are fastest out of the blocks for investors, alongside technology in all its forms.
In the energy sector, the high oil price continues to drive activity amongst exploration and production operators. International events look set to continue that upwards pressure on price. Increased activity here trickles down to all links in the supply chain. There is also the question of energy transition, with M&A continuing to be a key strategy for accessing adjacent sectors such as renewables, carbon capture and hydrogen.
Clearly 2024 will not be without its issues. Some will have half an eye (or more) on a possible change of UK Government, and what this may mean for tax on businesses and their owners. Predictions see the UK economy entering a period of slow growth, or even stagnation. Macro-economic factors, conflicts and political matters (including a US presidential election) will continue to dominate the headlines. But 12 months ago we were dealing with the aftermath of the Truss/Kwarteng mini-budget and escalating global interest rates. There is a feeling as we turn to the new year of having weathered that particular storm.
Partner Content in association with Brodies LLP.