The UK M&A landscape has seen significant shifts in the first half of 2024. From changing market dynamics to retiring business owners, various factors are shaping deal activity. As we reflect on what this means for our clients, we explore trends, specific transactions, private equity’s role, and the impact of baby boomers selling their businesses.
1. Trends and Outlook
Deal Flow and Recovery Factors
M&A activity in the UK mid-market experienced a slowdown in 2023 but is showing signs of recovery in 2024.
Factors driving recovery are:
- Financial Markets: Improvements in global financial markets due to decelerating inflation and expected interest rate reductions. The UK economy has been a beneficiary of this stability and international investors has started showing an appetite for the UK entrepreneurial markets.
- Pent-Up Demand: Both acquirers and targets eager to engage in deals after a cautious period in preceding years.
- Strategic Transformation: Companies adapting and transforming their business models; typically eager to explore a range of transactional opportunities for succession and growth.
Sectoral Variations
Sectors such as energy, technology, and pharma have rebounded, while banking and healthcare are recovering more slowly.
Opportunities exist in retail, creative businesses, real estate, and construction as companies recover or restructure.
“Investments made for the long term and the appeal of ‘permanent capital’ has been well received in the sub-£50m EV market.”
2. Example Transactions
Pharma Deal
Acme Pharmaceuticals acquired BioTech Innovations for £750 million. The strategic rationale was to enhance Acme’s drug pipeline.
Retail Acquisition
Global Retail Group purchased Urban Outfitters UK for £300 million, expanding its presence in the UK fashion market.
3. Challenges Faced by Dealmakers
- Valuation Uncertainty: Volatile markets make accurate valuation challenging.
- Regulatory Hurdles: Compliance requirements can delay deals.
- Integration Risks: Post-merger integration is critical, and the human capital element of a transaction has started taking a more prominent agenda point for CEOs.
- Geopolitical Factors: Brexit-related uncertainties impact deal sentiment. This is especially prominent for target businesses that trades internationally and compliance efficiency has been a driver in the small to mid-market M&A space.
- Competition: Bidding wars have always inflated deal prices, and as the market awakes after the slowdown of 2023 this has become more prominent.
4. Private Equity’s Role in SME Acquisitions
Capital Injection
Private equity firms provide SMEs with necessary capital as well as potential operational economies of scale.
Expertise and Resources
They offer strategic guidance and operational know-how as well as broader connectivity for portfolio businesses.
- Long-Term Focus: Investments made for the long term and the appeal of ‘permanent capital’ has been well received in the sub-£50m EV market.
- Exit Strategies: Planning for successful exits to drive greatest investor and stakeholder returns.
- Risk Mitigation: Private equity helps SMEs navigate challenges, ranging from financial control, HR, PR & marketing and logistics.
“Lack of succession planning poses risks for individual companies as well as sectors and regions.”
5. Impact of Retiring Baby Boomers
Nearly two-thirds of UK small business owners are over 50.
This has been a cornerstone of why we have launched M&A Chambers and will remain a focus to serve the entrepreneurs in what remains a life-changing decision. Lack of succession planning poses risks for individual companies as well as sectors and regions. Economic implications include increased capital investments and hiring opportunities.
6. The impact of the new Labour Government
From their pre-election manifesto to the early sound bites coming from the newly-elected Labour Government, it seems clear that one of the likely strategies are to raise Capital Gains Tax and even to bring it in line with Income Tax.
This could have a potentially material consequences for people selling their businesses where they may have relied upon, and even budgeted for preferential tax rates previously enjoyed by entrepreneurs completing a sale of their business.
These changes have significantly increased the volume of enquiries we have experienced and has been a fixed agenda point in meetings with our clients in recent months. The mood is often to take action now, rather than leave it to chance; or at the very least know the impact it may have on these retiring entrepreneurs.
Conclusion
As the UK M&A market continues to evolve, dealmakers must balance opportunities with challenges. Strategic planning, sector-specific insights, and collaboration with private equity firms will shape the future of M&A in the UK mid-market.
M&A Chambers are a boutique M&A consultancy focusing on the SME, owner-managed business sector, equipped with over 75 years of experience.
Please get in touch to start a strictly confidential conversation about your business plans, or to simply understand options that may be available to you.
Pieter van Rooyen | pieter.vanrooyen@ma-chambers.com