A debt funding frenzy and a flurry of mergers and acquisitions in UK tech could be on the cards as the Bank of England cut interest rates for the third time in the past year.
Britain’s central bank reduced the benchmark rate on Thursday from 4.75% to 4.5%, the lowest level since June 2023.
With new access to cheaper cash, trade buyers and private equity firms will be able to pursue acquisitions that would otherwise have seemed too costly.
“The movement of the Bank of England’s base rate typically has an impact on the M&A market, with today’s cut potentially resulting in an uptick in activity,” Hamish Martin, a partner at M&A specialist Lava Advisory Partners, told UKTN.
Martin added that the interest rate cut could encourage higher valuations, “as lower rates enhance the present value of future cash flows, making many targets more appealing”.
Lower borrowing costs will also make debt-based financing for tech firms a more attractive prospect, potentially opening up a stream of funding as the government aims to push its agenda of economic growth.
“While this move has the potential to support deal-making, it’s not a fix-all – broader economic conditions, investor confidence, and geopolitical factors will still play a critical role in shaping the market’s momentum over the coming months.”
The decision from the Bank of England follows successive interest rate cuts in August and November.
2024 was the biggest year for debt financing in Europe on record, according to figures compiled by Atomico.
With $4.7bn raised in just the first three quarters of 2024, this equates to the highest share of VC funding raised, equivalent to 14%.
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