Autumn Budget 2024: The impact on M&A activity

Following the rush of activity, many are questioning, “What is next for M&A?”. The post-Budget fallout is expected to continue over the coming months, with positive and negative impacts on M&A activity, particularly around Capital Gains Tax and Business Asset Disposal Relief.

We asked our corporate finance experts what they predict is on the cards and whether M&A activity will slow down as a result of the measures introduced in the Budget or continue to thrive:

Employer’s NI and minimum wage increases

Following the 1.2% rise in employer National Insurance Contributions (NIC) and a reduction in the secondary threshold from £9,100 to £5,000, partnered with a 6.7% increase to the minimum wage, will see businesses deterred from job creation, resulting in lower margins and less cash for reinvestment. This could cause M&A activity to decrease over time as businesses become less appealing as acquisition targets due to constrained finances.

Roger Esler, Corporate Finance Partner in Yorkshire and the North East, said: “The increases in employers’ NIC and the Minimum Wage have resulted in a need for some review of businesses’ forecasts and projections, both to factor in higher employment costs and to recalibrate headcount and investment plans.

“The net effect of all these factors has been an extension of planning and preparation phases and the delay of ‘going to market’ until the New Year, with deal completions targeting Q2 2025”.

Capital Gains Tax

The Budget saw an immediate change to Capital Gains Tax (CGT) rates, which came into effect on 30 October rather than 6 April next year. This means basic rate taxpayers will face a CGT rise to 18% for those earning up to £50,270

Gregg Pendlington, North West Corporate Finance Partner, added: “We are feeling optimistic about M&A volumes in the medium term, with the increase to CGT, not one that (in our opinion) will dissuade activity against the backdrop of improving economic conditions”.

Chris Murthi, Corporate Finance Associate Director at Camlee, said: “The sentiment among SME business owners is that CGT rates are more likely to increase in the coming years rather than decrease. This, combined with increased cost for SMEs—such as the increase in Employer’s National Insurance—will likely drive more business owners to consider their exit options. This should serve as a catalyst for increased M&A activity in 2025″.

Business Asset Disposal Relief

However, many small businesses will qualify for Business Asset Disposal Relief (BADR), which won’t come into effect until April 2025. This is expected to cause another surge in M&A activity as management teams look to complete deals ahead of the rise.

“We are expecting another swell towards April, maybe not as busy as the one pre-budget, but certainly quite a bit of deal activity, due to the impending BADR increase. Base interest rates coming down (as it did on 7 November) also supports the ability of acquirers to raise capital for growth or acquisitions and can drive better valuations”, says Koo Aseeley, Corporate Finance Partner in Wales and the South West.

Shaf Bheda, Corporate Finance Partner in the Midlands, commented: “In the short term, I anticipate a small increase in M&A activity to take advantage of the more generous BADR rates before they increase in April 2025 and again in April 2026.

“Longer term, I expect there will be minimal impact to M&A activity as a result of the changes to CGT rates, but we anticipate increased activity due to changes in Business Relief”.

In the wake of a variety of changes, some expected and some not, UK businesses are resilient and can adapt and overcome. This will support the continuation of M&A activity as businesses keep growing, despite waves of economic uncertainty.

Roger concludes: “In short, we expect most businesses to be able to adjust their models to restore profit to planned levels and, where they and their shareholders’ objectives are aligned, being able to plan and deliver a transaction event. The Budget has introduced a short period of delay and recalibration, but no more than that.

“The deal market will, of course, be greatly helped by further detail on the new Government’s plans and initiatives for growth and investment”.

If you are seeking more specialised advice catered to your needs, visit our dedicated Corporate Finance page, where you can contact your local team.