Winter update: The latest trends in the M&A market

Overview

For the M&A market, the start of 2025 has been defined by both optimism and lingering uncertainty.

The Autumn Statement in October provided some much-needed clarity over the political direction of travel. Businesses can now make plans, and act on them, with greater confidence.

The interest rate cuts that materialised in November and February – and the prospect of more to come – has also strengthened the outlook. However, rates have unwound more slowly than expected, and the general economic landscape remains volatile. This means that there is residual caution from all parties.

For some, this has prompted them to delay M&A activity. Others, who have pressed ahead, are finding that deals are taking significantly longer to complete than in previous years. This is, in part, due to a greater emphasis on due diligence from both funders and would-be acquirers, and ultimately means businesses considering M&A are having to start planning earlier, and with even greater diligence, to achieve successful transactions.

But, for all this caution, it remains the case that there is appetite for businesses that have a clear value proposition, well-communicated through a solid go-to-market strategy.

M&A market observations

We have seen some emerging trends recently amongst the deals that are being completed, as highlighted below.

Asset-Based Lending (ABL)

We have seen growth in the use of ABL as a ‘plan A’ feature of funding packages – not as a traditional last resort.

In particular for private equity investors and management teams seeking funding, this is being driven by ABL’s inherent flexibility and relatively low cost of capital compared to other forms of det. In a volatile economic landscape, it’s also often an accessible option from lenders that may be less willing to extend overdrafts or term loans, but are happier providing finance that has an inherent security baked in.

Employee Ownership Trusts (EOTs)

We have seen a growth in the acceptance of ‘alternative’ deal structures, particularly EOTs. This is a trend that’s been gathering pace over recent years, and that we see no signs of slowing in 2025 – particularly as a feature of the lower end of the market, as business owners look to respond to the rise in Capital Gains Tax by taking advantage of the capital gains relief that EOTs provide.

Sector spotlights

Amongst deal activity, certain sectors are proving to be particular hotspots. The common theme underpinning this is the search for resilient value.

B2B Services continue to be popular amongst buyers, given the critical role they play through the cycle in helping businesses operate day-to-day, as well as navigate periods of change and challenge.

Buyers also continue to be attracted to businesses with strong long-term customer contracts and recurring revenue streams in place, which are therefore more likely to have predictable revenue and profit, such as technology service providers and property management firms.

Overseas demand

There is growing optimism that the international buyer pool will be a key driver of UK M&A activity this year.

A few years ago, the weakness of sterling meant that the UK became a great place to do business for international buyers, and there is a good chance that could be the case again in the coming months.

In particular, the current strength of the US dollar could lead to increased interest from buyers across the Atlantic. But of course, the political landscape in the US also makes this a possibility that’s susceptible to rapid change!

Trade buyer competitiveness

It is also likely that we’ll see increased opportunities for trade buyers in the months ahead. Despite their significant level of ‘dry powder’, in the current environment we’re seeing private equity firms become increasingly selective about which assets they invest in, particularly for platform investments. This could reduce the competitive set for opportunities that could still be significant value drivers for trade buyers looking to achieve strategic growth through acquisition.

Preparation is key

Despite some uncertainty, we are still seeing clear demand for deals to be done.

However, in a landscape marked by caution, the quality of M&A strategy – from marketing and valuation all the way through to negotiating terms – is going to become an increasingly important differentiator when it comes to achieving great outcomes.

This makes it increasingly important that parties looking to pursue M&A activity ensure they have high-quality advice and are allowing themselves enough time for processes to run their course. Rushed outcomes almost never deliver the best possible result.