2023 saw a more subdued M&A market for lenders than recent years as the market adjusted to the headwinds of a rapid rise in base rate, persistent higher inflation and energy prices and the consequent pressures on the cost of living.
This lower level of M&A activity is expected to prevail for some time – with many borrowers still to migrate onto a new higher rate product – and market demand for lending is more subdued across most products. The prospect of a general election in 2024 is an additional wild card factor that will also influence decisions on whether the time is right to pursue M&A.
The predicted changes in deal drivers have also become more apparent, with many business models feeling some level of stress whether related to lower volumes, rising costs and/or access to well-priced liquidity. Public market valuations and low demand for listings also narrow the pipeline for deal activity.
Deals are still getting done, but traditional sale processes are fewer than in past years and feel more challenging as a way to drive strong competitive tension. The pace of macroeconomic change also renders it difficult to forecast confidently to underpin transaction values.
The shifting environment may provide opportunities for strongly performing M&A newbies to proactively consider M&A at a time when the usual protagonists are distracted or minded to wait it out.
