Impact of the Autumn Budget on the Mergers and Acquisitions market

Ahead of the Autumn Budget there was a great deal of uncertainty and also some panic, with business owners and investors making moves to improve their position amid concerns of the severity of the speculated changes.

Our corporate finance team managed to complete three deals in Budget week, which enabled clients selling their businesses to crystalise their tax position at pre-budget rates. 

With the challenges ahead now realised, those who perhaps weren’t ready to exit their business, or indeed commit to buying one, can now at least plan ahead with some degree of certainty. 

Despite an immediate increase to the rate of Capital Gains Tax (CGT), changes due to be introduced to the rate of Business Asset Disposal Relief (BADR) and plans announced for significant reforms to inheritance tax reliefs, initially it seems the overall market has not slowed down and the general feeling is that the tax increases are not as bad as expected. Clients are still actively engaging with us to either sell or acquire businesses and our pipeline remains incredibly buoyant. 

The early response to tax rises in the M&A market

Whilst CGT rises haven’t had an adverse effect on clients’ willingness to transact, there is an obvious appetite for shareholders looking to sell their business to complete their transaction before the end of the 2024/2025 tax year to avoid increases in BADR rates. 

In order to deliver a transaction in the current tax year, we recommend businesses and individuals seek advice at the earliest opportunity to assess their position and allow us to introduce colleagues from different service lines, such as corporate/personal tax and financial planning, to ensure that they are fully informed and have a clear understanding of what lies ahead.

Other challenges brought about by the budget

Early indications suggest that valuations are being impacted by increased staff costs brought about by the rises in the Budget to employers National Insurance and the National Minimum Wage. 

Traditionally, the most common method of valuing a business is centred around the maintainable level of EBITDA it makes on an annual basis. Therefore, historical profitability is a large component used to establish what that maintainable number is, and staff costs represent a large part of that, particularly in the hospitality and healthcare sectors.

Luckily, when we’ve been acting on the sell side of transactions, we have identified mitigating factors that have enabled our clients not to be subject to potential ‘price chips’ due to the increase in staff costs on their business. However, we have a number of clients who have decided to halt processes until they are comfortable with the impact these increased costs could have on their business or one they are looking to acquire.

In order to support our clients who have halted processes following the Budget, we have held regular meetings and calls and prepared valuations and financial projections to enable them to assess the impact changes have on their M&A process and identify ways to mitigate any risks. 

Action to take

If you are a business owner looking to transact by either exit or acquisition, please seek advice at the earliest opportunity so we can assess your position and protect value.

Having completed 14 transactions in the current financial year to date, across a number of different sectors, we are well placed to advise you on every aspect of an M&A process from buying or selling your business to management buyouts and debt/equity fundraisers.