M&A activity in the UK for the first half of 2023 (H1’23) has fallen in comparison to the same period last year as macroeconomic headwinds and tight financing markets continue to affect the volume of deals completed, according to PwC’s latest Global M&A Industry Trends report.

In total the UK saw 1,902 deals in H1’23, compared to 2,408 over the same period last year, a 21% decline. While year-on-year volume is down, deal activity is still at or above 2018-2019 levels , pre-Covid.

The analysis shows there was a total of £42.8bn ($54.8bn) worth of UK deals in H1’23 compared with £95bn in H1’22 a 55% drop in value, with fewer larger deals and a decline in average deal size. The number of deals greater than £1bn in value dropped from 19 with a combined value of £46.7bn in H1’22 to seven deals with a combined value of £15.4bn in H1’23. Mid-market deals activity has remained more resilient, as smaller deals are proving easier to get done in today’s difficult financing and regulatory environment.

Commenting on this, PwC UK head of deals, Lucy Stapleton, said: “The UK experienced a tough transactions market during the first half of the year as conditions to complete deals, particularly high value ones remained volatile. Gaps in valuations between buyers and sellers continued to feed uncertainty and high interest rates made financing deals difficult.

“Despite this, activity in H1‘23 has been resilient and while in terms of volume we are not seeing the record levels compared to the same period last year, they are still roughly around pre-pandemic levels.

“In spite of the macroeconomic backdrop dealmakers remain optimistic and there is pent up demand amongst dealmakers who remain poised to deploy capital when market conditions begin to stabilise and valuation gaps narrow. The mid-market is continuing to hold up as cash-rich corporates look for strategic opportunities and we may see more bolt-on transactions as well as sell-sides as private equity and corporates start to prepare to exit businesses.”

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“As we enter the second half of the year dealmakers will be looking to invest while the market is not at its buoyant best to maximise returns and a number of investment committees will be waiting to see how generative AI is disrupting their industries and the investment opportunities this may present. How deals are structured will also be key, we are seeing more creativity because of the current conditions whether that involves putting in more equity or finding sustainable financing to get deals over the line.”