M&A is ‘on fire’ as large-cap firms simplify, Citi UK CEO says

U.K. M&A is running hot, driven by large-cap companies simplifying their businesses and overseas buyers targeting cash-generative British assets, Citi U.K. CEO Tiina Lee has told CNBC.

Speaking with CNBC's "Squawk Box Europe" in Canary Wharf Thursday, Lee said M&A was "on fire," pointing to an ongoing push by major companies to streamline portfolios and focus on core operations.

"It's being driven by the ongoing theme around U.K. plc simplification," Lee said, referring to a trend among large-cap companies that are streamlining their business models.

She highlighted the transaction involving McCormick and Unilever's food business, as well as Diageo's sale of its Indian cricket team, as examples of companies sharpening their focus around core competencies.

Lee added that foreign investment into the U.K. has also been strong, with 28 transactions announced so far this year, particularly targeting businesses with solid cash flows and international profiles. At the same time, U.K. companies are continuing to invest overseas, she added, noting Rosebank's acquisition of MW Components earlier this year.

"All of this is focused around large caps focusing on their core competencies," she added.

The strength in dealmaking stands in contrast to a quieter IPO market, Lee said, with M&A currently providing the main momentum in U.K. capital markets.

A key driver is the valuation gap between the U.K. and U.S., she said, adding that well-established British companies with strong cash generation and resilient business models remain highly attractive to international buyers.

The number of deals in the U.K. market fell by around 12% last year, according to PwC data, but the total value of those deals increased by roughly 12% as average deal size soared 30%.

This suggests that strategic buyers and private equity firms are increasingly targeting high-quality assets rather than pursuing volume.

Major deals included Anglo American and Teck Resources' £15.2 billion cross-border merger, insurer Direct Line's £3.7 billion takeover by Aviva, and DoorDash's £3.9 billion acquisition of Deliveroo.

Britain's IPO market has remained relatively weak in recent years. PwC described 2025 as London's strongest year for IPO activity since 2021, though volumes were still well below the levels seen the prior year.

EY data shows 23 companies listing on the London Stock Exchange over 2025, with nine main market listings and 14 IPOs on junior "AIM" market. IPOs raised around £2.1 billion, up 170% on the previous year.

But there were only two IPOs in the first quarter, according to the Financial Conduct Authority, with just one on London's main market.