M&A update: The impact of the Budget and beyond

Thursday December 5, 2024

The impact of the Budget and beyond

For the M&A market, the last quarter was dominated by speculation around the new government’s first Budget.

While it didn’t drive a surge in new deals, we saw a flurry of activity in September and October as shareholders and management teams rushed to get existing plans that were already underway over the line ahead of any potential new tax changes, particularly a much anticipated rise in Capital Gains Tax (CGT).

Now the Budget has passed, and the dust has started to settle, it means there is time to reflect on what was announced and take stock of how it might shape the dealmaking landscape moving forwards.

Overall, the outlook is very positive. Despite some tax increases, these were smaller than some people feared and are unlikely to significantly impact deal volumes. We anticipate a steady deal flow for the months ahead.

A split market

However, there are some areas where we will see an impact from the decisions taken by the Chancellor.

Generally speaking, the immediate increase in the lower and higher rates of CGT from 18% to 24%, respectively, and the increase in Business Asset Disposal Relief (BADR) from 10% to 14% in April 2025 isn’t going to dissuade larger businesses from pressing ahead with their plans for a sale.

But it could make smaller firms think twice about their options.

We may see some smaller M&A deals accelerate to try and take advantage of BADR at its current rate. Alternatively we might see more owners looking to exit through an Employee Ownership Trust (EOT) instead.

In a similar vein, the rise in National Insurance contributions from employers may cause more business owners to consider employee share incentive schemes to reward their key workers while managing the impact of this rise. For those that choose to go down this path, it tends to be with an eye on a future M&A event, which could, in turn, contribute to the volume of deals coming to market in the near future.

And the changes to inheritance tax (IHT) could see some families take their business to market earlier than planned, especially if the next generation set to take over decide it isn’t worth the increased tax they’ll have to pay to inherit the family business.

Matt Field, Director- Corporate Finance

Positive outlook

Our expectation of a steady M&A market is also based on favourable macro tailwinds. Any further cuts in interest rates – even if gradual, as hinted at by the Bank of England – are likely to keep creating momentum in the market.

And there is good availability of capital and debt to support deals. Lenders are in the market and happy to support, although in our experience they still require more due diligence than they have in years gone by.

In our view, this is a return to a sensible market position. It means deals are being carefully considered before they complete and should pose no challenge for parties that prepare well. However, it might mean that it continues to take a little longer to get deals over the line – something that should be factored into any seller or acquirer’s plans.

Looking at it in the round, the M&A market is in a place that is healthier than we have seen in recent times.

At FRP Corporate Finance, we’re optimistic of what the next quarter will bring, and we will continue to be providing businesses and investors – across the country, and across all sectors – with the support they need to as they pursue their ambitions.