As we approach the Autumn Statement on 30 October 2024, businesses are preparing for potential changes that could impact mergers and acquisitions (M&A) and corporate investment in the UK. After a quiet 18 months, M&A activity is picking up, but concerns loom about how the upcoming budget might affect this momentum.
A SURGE IN ACTIVITY – BUT WHY?
Much of the recent deal activity is being driven by sellers who had already planned to exit. However, experts report a rush to finalise deals before the budget, with fears that some may fall through due to insufficient preparation. Sellers are primarily motivated by the possibility of changes to Capital Gains Tax (CGT), hoping to complete transactions before any unfavourable adjustments. Successful deals are always those where planning was done well in advance, not driven by panic over speculative tax changes.
A STRATEGIC DECISION, NOT PANIC SELLING
While there’s some urgency, most sellers, whether owner-managers or private equity (PE) have been planning their exits for some time.
We’re not witnessing a broad, market-wide “rush to the door”. Instead, sellers are in the main mindful of the importance of timing. Having the right advisor, preparation and the right market conditions.
Buyers too are keen on securing good quality deals. If they sense a seller is rushing to meet a tax-driven deadline it may impact negotiations, particularly around price which puts sellers at risk.
PLAYING THE LONG GAME
For many business owners, particularly those who have built their companies from the ground up, selling is a long-term decision. Their businesses represent years of work, and they are not willing to risk making a sale based on short-term political changes. If CGT or other taxes are increased, many owners may choose to wait for better conditions rather than accept less favourable terms. This could reduce the number of transactions depending on the announcements in the budget.
Any attempt by the government to increase tax revenues, for example through a higher CGT rate, could inadvertently lead to a decrease in tax revenue with fewer businesses sold as owners wait for conditions to improve
The same principle applies to other asset holders, such as property owners, who may defer selling unless absolutely necessary. This hesitation to sell could have wider implications on the UK economy with lower transaction volumes adversely impacting growth.
UNCERTAINTY STALLS INVESTMENT DECISIONS
One major consequence of uncertainty surrounding the Autumn Statement is that businesses are deferring important investment decisions. Without a clear view of future tax and regulatory frameworks, companies are reluctant to commit to long-term investment. An issue that could harm the UK economy.
Over the last decade, growth in the UK has stagnated, partly due to inconsistent policymaking. What the economy needs now is stability and pro-business policies to restore market confidence. The government must provide a clear roadmap for businesses to plan for the medium to long term.
ENTREPRENEURIAL TALENT AT RISK
At CP Deals, we focus on middle-market businesses, particularly owner-managed and private equity-backed firms. These businesses are often led by entrepreneurs who have risked personal capital and reinvested profits for long-term growth. Their motivations go beyond annual income; they are often driven by problem-solving, creating new products or services, and building a flexible lifestyle.
For tech entrepreneurs, many of whom have international experience, the UK’s appeal as a business destination could be threatened by unfavourable government policies. While many have ties to the UK that are hard to relocate others may be considering relocation to a more favourable environment.
It’s going to be a case of ‘wait and see’ to understand the real impact of changes that are currently speculative.
IMPACT ON THE M&A ECOSYSTEM
If the government does not foster an environment conducive to entrepreneurship and business growth, the long-term impact on the UK M&A market could be severe. The UK has historically held a strong position in the global M&A industry, attracting world-class talent to its advisory firms, legal practices, and financial institutions. Poorly conceived tax policies could undermine this position. The ripple effects would be felt by M&A advisers, accountants, lawyers, investment bankers and financial institutions. All sectors critical to the economy.
Short-sighted tax policies could decrease the number of successful businesses and transactions, leading to a drop in tax revenue. The stakes are high: a well-designed policy could encourage growth, while punitive changes might do the opposite.
THE NEED FOR STABILITY AND PRO-BUSINESS POLICIES
As the Autumn Statement approaches, the government must consider the broader implications of its tax and economic policies on businesses. A balanced approach that promotes investment, entrepreneurship, and business growth is what is needed. Without this stability, many businesses will delay key decisions, potentially missing out on growth opportunities that could otherwise drive economic recovery.
LOOKING FORWARD
The 2024 Autumn Statement presents both risks and opportunities. The government has the chance to provide stability and foster a pro-business environment- something the UK needs. However, if punitive tax changes are introduced, the UK could see fewer business sales, reduced tax revenues, and a loss of entrepreneurial talent. The business world is waiting for clarity, and the stakes couldn’t be higher.
