As the UK economy seeks to get back on its feet and establish a new normal following the pandemic, next year is likely to see robust activity in both the mainstream and distressed M&A markets in the UK.

The UK M&A market has far exceeded initial expectations that existed at the onset of the pandemic, with some sectors such as TMT, tech-enabled business services and healthcare proving particularly strong and active.  

Deal activity has undoubtedly been helped by the availability of "cheap" credit and high levels of "dry-powder" with private equity but it has not been plain sailing for the whole of the market, with difficulties being faced in many areas of the retail, hospitality and leisure sectors for example.

However, these challenges have not translated into high volumes of distressed M&A with this section of the UK M&A market being relatively subdued in 2021 as the UK Government's support measures have enabled many businesses to weather the operational and financial challenges brought on by COVID. Now these support measures are tapering off and other challenges in areas such as supply chain management, labour shortages and higher energy costs are taking hold, combined with an expected increase in interest rates, company executives and financial stakeholders may be forced into making some difficult decisions.  

We expect this to drive more financial restructurings and distressed M&A activity in is shaping up to be an interesting 12 months ahead.