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Public M&A activity in 2022 did not meet the expectations predicted towards the end of last year. The UK saw a significant increase in takeover activity in 2021 which was fuelled by strong participation from private equity bidders, cheap debt finance and optimism that the UK economy had emerged from the worst effects of the pandemic. The boom in public M&A activity was expected to continue going into 2022, as many of the underlying fundamentals which drove M&A to record highs in 2021 continued to apply at the start of 2022 however, this did not come to pass as the year progressed.

The UK public M&A environment softened in 2022 as takeover activity returned to more modest levels. 2022 saw 45 firm offers announced*, a 15% decrease in deal volume compared to the 53 firm offers announced in 2021. Despite a large number of high value transactions announced in Q3 2022, overall deal values also decreased in 2022 which saw an aggregate deal value of £41.1bn, a 37% decrease compared to an aggregate deal value of £65.5bn in 2021.

The decline in public M&A activity in 2022 can be attributed to geopolitical turbulence, including the war in Ukraine, interest rate hikes, high inflation, and supply chain disruption all contributing to volatile public markets. In particular, the rising cost of financing had a significant impact on M&A activity in 2022. In comparison to 2021, which saw cheap debt driving high levels of takeover bids, the likelihood of recession and the challenging debt market in 2022 put something of a brake on that.

Debt financing markets cooled in 2022 and became less permissive than they have been in recent years which suppressed activity. Of the 45 firm offers in 2022, only 22 (56%) were funded by debt finance, unsurprisingly this was a 33% decrease compared to 2021 which saw 33 (66%) firm offers funded exclusively or partly by debt finance. In 2021, cash remained king with 94% of firm offers announced involving a cash consideration element and only 23% involving a share component. It was expected that in 2022 there would be an increasing trend towards share offers or at least a share component in offers would potentially accelerate as companies would be seeking to avoid high interest costs through borrowing cash. However, this prediction did not ring true in 2022. Of the 45 firm offers in 2022, 16 (36%) involved a share component and while there was a slight uptick compared to 2021, cash funding still remained the popular choice for bidders as 87% of the firm offers announced in 2022 had some form of cash element. In fact, SDX’s offer for Tenaz Energy which was originally structured as an all-share offer, to introduce a cash alternative under which Tenaz shareholders could elect to receive cash instead of some or all of the shares after only five weeks since announcing the offer, demonstrating that cash will always be a popular choice.

There was a reduction in public to private (P2P) takeover activity compared with recent years, with only 18 (40%) of the 45 firm offers involving private equity, family offices or individuals. In 2021, 34 P2P transactions were announced, which accounted for 64% of all firm offers announced. The aggregate deal value of P2P transactions in 2022 was £17.2bn, a significant 58% decline compared with the £41.2bn aggregate deal value of P2P transactions in 2021. However, private capital continued to play an active role on the largest transactions with six (46%) of the 13 £1bn plus takeovers announced in 2022 being P2P transactions. This paints a less bleak outlook for 2023 as there also  remains record levels of private equity and other private capital to be deployed and the share prices of UK-listed companies remain depressed presenting real opportunities for private bidders. Appetite remains from private equity buyers, in particular from overseas bidders, however creative financing solutions are needed to counteract the considerable interest rates behind the scenes. A resurgence in larger take private transactions is expected once the traditional debt markets return.

Overseas bidders were involved in 29 of the 45 firm offers in 2022 with an aggregate deal value of £33.6bn, which represented 82% of aggregate deal value for all firm offers during 2022. While US bidders were less active than in recent periods, they still accounted for 38% of the deal activity from overseas bidders with an aggregate deal value of £7.4bn.

Despite the underwhelming public M&A environment in 2022 due to geopolitical instability and volatile market conditions, the continuing weakness of the pound still points towards UK targets being comparatively cheap for overseas bidders providing opportunistic bidders with strategic targets. As a result 2023 could see an uptick in M&A activity.

*This review covers firm offers which were announced between 1 January 2022 and 22 December 2022. Any further transactions announced will be covered in our upcoming 2022 public M&A trend report which features in-depth analysis of all deals announced in 2022 and provides expert commentary from leading M&A practitioners.

For more in-depth analysis of the key developments in this area, a full list of our public M&A coverage in 2022 can be found below:

Former FTSE 100 giant Aggreko returns to take AIM-listed Crestchic private

Schneider Electric secures shareholder support for increased AVEVA takeover bid

Market Tracker trend report—trends in UK public M&A in Q3 2022

Former M&C Saatchi director accelerates hostile takeover bid

Private equity group Thoma Bravo terminates takeover bid for Darktrace

Leading UK housebuilders Countryside and Vistry set to merge in £1.25bn deal

Darktrace’s future appears murky as Thoma Bravo considers takeover

UK government clears Parker-Hannifin to takeover Meggitt

Serica Energy readies pac-man defence against Kistos possible offer

Market Tracker trend report—trends in UK public M&A in H1 2022

Australian-Spanish consortium set to go ahead with £650m takeover of UK transport company

UK private equity buying spree continues as KKR launches ContourGlobal takeover

Sweetened competing offer by Pagero wins Tungsten recommendation

Trends in Public M&A in Q1 2022—Market Tracker Trend Report

Private equity group Slate withdraws from McKay Securities bid

DBAY’s possible offer sparks race to take CareTech Holdings plc private

Spectris terminates takeover bid for Oxford Instruments due to Ukraine conflict

Takeover approach for Oxford Instruments from rival Spectris sends shares surging

Playtech CEO teams up with TTB to bid for control

John Menzies continuously rejects Kuwait rival’s ‘opportunistic’ takeover bid

Aristocrat’s £2.7bn Playtech takeover bid blocked by activist shareholders

Photo-Me unimpressed by CEO’s discounted mandatory takeover bid

M&C Saatchi snubs initial reverse takeover approach from tech magnate Vin Murria

Market Tracker trend report—trends in UK public M&A in 2021

Playtech delays Aristocrat takeover vote as JKO Play interest sparks prospect of bidding war