Mergers and acquisitions between financial businesses are set to rebound this year, having dropped to a nine-year low in 2023, EY has argued.
Analysis from EY, which it shared with financial newspaper City AM, showed that last year just 273 mergers involving financial services firms based in the UK were agreed. That’s down by almost a tenth on the 301 deals which went through in 2022, and represents the lowest figure in almost a decade.
It’s not just the number of deals that has declined, but the value too. The total deal value for 2023 came to £12.1bn, the lowest figure since 2014 and a significant drop from the £14.9bn recorded in 2022.
The number of foreign businesses acquiring UK firms dropped from 65 in 2022 to 54 in 2023, with the total value sliding from £7.7bn to £6.3bn. Meanwhile, the number of UK firms buying overseas targets dropped from 69 deals to 66, with values almost halving from £3.2bn to £1.7bn.
According to EY, the prospects for dealmaking took a hit last year as a result of rising interest rates and inflation, as well as concerns around the stability of global banking.
However, with rate cuts likely in both the UK and US, this could drive greater activity levels in mergers and acquisitions, EY has suggested.
Tom Groom, global client service partner at EY, said that while many of the “headwinds” present in 2023 are still around, the fact that interest rates are projected to fall in 2024 should lift market confidence.
He added: “As a result, we anticipate M&A activity to increase throughout 2024 as firms look at new ways to innovate and grow in this improved economic environment.”
For customers of financial services companies, this type of consolidation can be double-edged sword. In a recent feature in YourMoney.com‘s sister publication Mortgage Solutions, mortgage brokers noted that on the one hand, mergers can bring greater scale and improve the professionalism of brands, but it can also limit consumer choice and lead to dilution of service and expertise in the market.
