’Economic headwinds at the start of the year caused many lenders to pull back from financing large deals,’ says leader

Merger and acquisition (M&A) deal values fell in the first half of 2023 despite an increase of activity during the period, according to new figures from EY.

In a statement released yesterday (10 July 2023), the firm said the number of insurance deals rose from 48 in H1 22 to 54 in H1 23.

However, it found that the total publicly disclosed deal value fell from £3.8bn to £16m year-on-year.

Tom Groom, UK financial services strategy and transactions leader at EY, explained that economic headwinds contributed to the deal value dropping.

He 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.”

Return to normal?

This came after specialist insurance and reinsurance broker BMS said volatile stock markets, debt financing restraints, rising interest rates, inflation concerns and geopolitical uncertainty could result in lower deal volumes and valuations in 2023 earlier this year (19 April 2023).

And across the UK financial services industry as a whole, the total disclosed deal value fell from £11.5bn in the first half of 2022 to £4.7bn in H1 23, representing the lowest level of activity by value since the start of the pandemic.

This was despite 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.

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.”