Giles Dunning, a partner and joint head of the Corporate team at Stephens Scown, shares his thoughts on the M&A marketplace in the UK, how it has been affected by the socio, economic and political climate and key trends from 2024 and into 2025.
2024 was a busy year for Mergers & Acquisitions (M&A) in the Corporate team at Stephens Scown, as we completed 37 transactions with an aggregate value in excess of £130m. Throughout the year, the team acted on a relatively even split of significant trade sales and Management Buyouts (MBOs), alongside an increasing proportion of sales to Employee Ownership Trusts (EOTs).
The announcement of an early general election brought an element of uncertainty to the market, undoubtedly impacting M&A and investment decision-making. A mid-year hiatus emerged as business owners and potential acquirers took a ‘wait and see’ approach pending the outcome at the polls. In the immediate aftermath of the election, there remained a lack of clarity over tax policy and, as the government began laying the groundwork for potential tax rises from mid-summer onwards, a sense of nervousness crept into the M&A market.
Deal activity
Momentum picked up in the autumn as the Budget was scheduled for late October with speculation over potential rises in CGT rates and reform of Business Asset Disposal Relief leading to a significant surge in transaction activity. Many vendors were anxious to complete their disposals before 30 October to lock in existing tax rates and we completed a number of transactions in the run up to the Budget.
When the Budget was finally delivered, the general consensus was that it was not as detrimental to future M&A activity as many had feared. The main rate of CGT for higher-rate taxpayers increased from 20% to 24% – a rise, but still lower than anticipated by many. Additionally, the rate of Business Asset Disposal Relief was maintained at 10% until the end of the current tax year, with planned increases to 14% in April 2025 and 18% in April 2026.
Looking to the future
As expected, transaction activity slowed in the immediate aftermath of the Budget. However, looking ahead to 2025, the outlook is one of cautious optimism. We have seen growth in sectors such as Healthcare, Financial Services, Artificial Intelligence, Technology, ESG and Construction. Meanwhile, transactions in Future Energy and those involving the adoption of an Employee Ownership Trust model also remain strong and active. With Employee Ownership bringing enormous benefits to businesses, employees, and the wider economy, it is not surprising that the UK’s employee ownership sector is enjoying rapid growth.
Finances and funding
There is now greater certainty regarding the tax environment in the short term at least, although the Chancellor remains under pressure to make tough fiscal decisions due to weak economic growth with the growth estimate for the UK being halved to 1% from 2% by the Office for Budget Responsibility (OBR). Many business owners will naturally be keeping a close and cautious eye on the impact of increased national insurance contributions, payroll, business rates and other financial increases on their business before making any decisions on M&A opportunities.
Although inflation persists, there is still an expectation of further interest rate reductions, which should, in theory, make it easier to raise debt for acquisitions. Mainstream lenders continue to show an appetite to finance transactions, with a good number of bank-financed MBOs regularly taking place. Meanwhile, private equity houses hold significant ‘dry powder’ that they will be keen to deploy, further driving transaction volumes over the coming year.
The Spring Statement has brought further clarity on the Chancellor’s economic plans, and its potential impact on businesses throughout the UK with the focus on spending cuts to offset challenges posed by an uncertain global economy, the costs of government borrowing and increased defence expenditure as opposed to further tax rises for now until the autumn at least. However, it appears that the Chancellor will be forced into difficult decisions on a sixth monthly basis for the foreseeable future and speculation as to what may be in store in the autumn may to start to build as we move through the year.
At Stephens Scown, our award-winning Corporate team has a wealth of experience in guiding business owners through the M&A process – whether for vendors or acquirers. If you would like to discuss potential acquisition or exit opportunities, whether through a trade sale, MBO, or a sale to employees, please do get in touch on 0345 450 5558 or enquiries@stephens-scown.co.uk