LexisNexis Market Tracker Trend Report: Trends in UK Public M&A deals in H1 2023

Our London Corporate M&A team were delighted to contribute to the latest LexisNexis Market Tracker Trend Report on UK Public M&A. The report provides an insight into UK public M&A activity in the first half of 2023 and what we expect to see for the rest of the year.

The report reviews a total of 48 transactions including 25 firm offers, 16 possible offers and seven announcements of formal sale processes and/or strategic reviews, which were announced by Main Market and AIM companies subject to the Takeover Code (the Code) in H1 2023.

Topics covered include:

• Outlook for H2 2023
• Deal value and volume
• Deal structure
• Unrecommended, competing and mandatory offers
• P2P transactions
• UK and overseas bidder activity
• Industry focus
• Shareholder engagement
• Legal and regulatory developments

White & Case commentary

"As we predicted in the 2022 public M&A trend report, stubbornly high inflation and rising interest rates mean fears of global recession have persisted through the first half of 2023 and show no signs of abating. Also, many of the wider geopolitical and macroeconomic factors that affected M&A activity in the second half of 2022 have continued to have a dampening effect on equity and debt markets and M&A activity in many sectors."
Tom Matthews, M&A Partner

"Despite the economic headwinds mentioned previously, private equity investors have navigated the constraints of the high cost of borrowing and, in 2023, we have seen a significant increase in interest in P2Ps in the UK, albeit with lower-than-average deal values. Even if interest rates remain high we expect to see a further resurgence in larger P2Ps as soon as there is more stability in the markets and, medium-to-longer term, a return to form in the traditional debt markets. On larger take-privates we expect to see sponsors bringing in their limited partners as co-investors. PE funds have limits on the deals that they can make relative to the size of their vehicles; a co-investor mitigates against concentration risk. These co-investor arrangements also give fund managers extra firepower to allow them to execute larger P2P deals, which is vital given the continued high cost of debt financing."
Sonica Tolani, M&A Partner.

"We have continued to see high levels of interest from non-UK bidders, with overseas bidders being involved in firm offers representing 88% of aggregate deal value for all firm offers during H1 2023. Sterling and the euro have strengthened slightly from their lows of September 2022 but remain comparatively weak against the US dollar. UK and EU assets therefore look cheap to prospective US buyers who, we predict, will be making a comeback having had a quieter run in 2022."
Tom Matthews M&A Partner

"Despite many predicting UK tech assets to continue to be among the most prized in 2023, appetite for M&A opportunities has been largely sector agnostic. The first six months of 2023 have instead been characterised by much smaller-than-average deal sizes across a wide range of industries. This suggests that where there is a deal to be done, many bidders are willing to snap up assets regardless of sector, no longer insisting upon 'big ticket' or high profile investments."
Philip Broke, M&A Partner

"NSI Act conditions have now become a standard feature of deals within sensitive sectors even when a mandatory filing is not required. This is because many purchasers seek the comfort of an approval given that the Government can review any transaction, whether or not the triggers for a mandatory filing are met. The vast majority of reviews are being conducted within the 30 working day review period, although clearance will typically be towards the end of the full 30 working day review period. After initial teething problems with the operation of the online portal, the system now appears to be working well. However, whilst it is still too early to discern any significant trends, the impact on notified (and unnotified) transactions is becoming clear. There have been several conditional decisions (typically relating to organisational and behavioural commitments), rather than divestment or structural conditions. There have also been a small number of outright prohibitions, including two unwinding orders for transactions that had already completed before the NSIA came into force. In terms of sectoral focus, some sensitive sectors are more prevalent than others when it comes to such decisions, with military and dual use goods, satellite and space technology, energy and advanced materials featuring most commonly among the conditional decisions."
Marc Israel, Antitrust Partner

"The changes proposed by the Takeover Panel to Rule 21 will be welcomed by offeree companies, who will gain significant flexibility in running their day-to-day operations during the "relevant period" without falling foul of the restrictions on frustrating actions. On the other hand, while this change will limit the ability of a bidder to object to the taking of certain actions, anything that is in the ordinary course of business or is not material is, theoretically at least, unlikely to frustrate an offer. In any event, undue restrictions to carrying on the business of the target are unlikely to be in the best interests of the target shareholders, the target company or indeed the bidder."
Philip Broke, M&A Partner

"While the new market guidance is to be welcomed, the NSI decision-making regime remains something of a black box for parties navigating call-in review and discussions about potential conditions. Secretary of State in the Cabinet Office, Oliver Dowden MP, has acknowledged that the NSI regime needs to be more open and transparent if government is to demonstrate that Britain is truly open for business and investment. In terms of deal impact, NSI Act review is now a standard feature of UK M&A transactions, even in deals that may only qualify for voluntary rather than mandatory notification. It is notable, for example, that of the 11 decisions imposing conditions on transactions under the NSI Act to date, 4 have been imposed on transactions that were voluntarily notified. In terms of sectoral focus, decisions in the advanced military & dual-use, defence and advanced materials sectors continue to be a notable trend, although the NSI Annual Report, due for publication shortly, should make clear whether this a function of the number of notifications in these sectors or because they represent a particular focus area for government."
Marc Israel, Antitrust Partner

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