UK deal market shows mixed signals amid tech M&A declines

Despite GDP growth of 0.6% in Q2 2024, the UK tech M&A market has not shown clear signs of recovery. The region experienced a 27% year-on-year decline in new tech and telecom M&A transactions​

While several large takeovers have been announced, such as Intel's investment in its Fab 34 facility in Ireland, overall M&A activity has remained sluggish, with a 38% drop in tech M&A deals from Q2 to Q3 2024​​. Private equity tech deal activity in the UK has also dropped significantly, with buyouts continuing to dominate. 
 
Concurrently, venture capital activity has been weak in 2024, with a decline in dealmaking and fundraising. The good news is the new Labour government is focused on boosting the tech sector. 
 
The launch of the UK government’s new securities exchange, The Private Intermittent Securities and Capital Exchange System (PISCES), in 2025 will also give the UK tech transaction market a much-needed leg up. This will be a UK-based trading platform for private company shares and unlisted securities. It’s aimed at investors who want to buy or sell shares in smaller companies and companies raising capital outside public markets.
 
The UK IPO market remains cautious, with companies waiting for more favorable conditions before pursuing public listings. M&A activity is expected to remain subdued through the rest of 2024​.

AI M&A picking up 

 
Artificial intelligence (AI) transactions are hotting up across the UK and Ireland, with $1.43 billion* in AI transactions announced from January 2024 to August 2024, according to Dealogic. February was the biggest month so far this year, with $569 million in AI deals announced, followed by April, with $389 billion in announced AI deals.
 
In cybersecurity, transactions to the value of $4.46 billion were announced across the period in the UK and Ireland. April was the biggest month with Thomas Bravo’s $5.38 billion acquisition of Cambridge-based Darktrace, which uses AI and machine learning to combat cyber threats. The Darktrace board accepted a $7.75 a share offer, representing a 20% premium and an enterprise value of $4.99 billion.
 
In tech, software remains the biggest subsector with $38 billion in transactions across the period in the UK and Ireland. June was the biggest month so far this year, with $15.07 billion in transactions announced, followed by April, with $10.36 billion in announced transactions. 
 
The biggest software deal so far in the UK and Ireland this year has been Apollo Global Management $11 billion investment to acquire a 49% equity interest in a joint venture related to Intel's Fab 34 facility in Leixlip, Ireland. Fab 34 is Intel's manufacturing plant for Intel 4 and Intel 3 process technologies. Intel will keep operational control and a 51% controlling interest. The joint venture will manufacture wafers for Intel and its foundry customers, with Intel committing to buy a minimum volume of wafers. The transaction enhances Intel's balance sheet with capital at a cost below its cost of equity.
 
Another significant software transaction in the UK this year has been private equity firms CVC Capital Partners’ and Haveli Investments’ acquisition of video game developer and publisher, Jagex, also based in Cambridge. The terms of the deal were not disclosed. 
 
There has been $21.51 billion in announced telco transactions in the UK this year, with the two biggest months being August, with $4.06 billion in one announced deal and March with $2.84 billion in announced deals. 
 
The August deal involved India’s telco and tech conglomerate, Bharti Group, buying a 24.5% stake in major UK telco BT Group plc for $4.06 billion from telco, Altice UK. BT and Bharti have had a long association but Bharti says it doesn’t intend to mop up the rest of BT.
 
* All figures in US dollars.