New data has revealed that UK M&A activity was sluggish during the third quarter of the year, with deal volume and domestic deal value both down in comparison to Q2 2024, despite an increase in investment from overseas buyers.
New quarterly M&A figures from the Office for National Statistics (ONS) show that the combined total number of domestic and cross-border M&A deals involving a change in majority share ownership stood at 436 during the third quarter of 2024, down from 479 in Q2.
Meanwhile, the value of domestic M&A deals in which a UK company acquired another UK company, fell from approximately £3 billion in Q2 2024 to £2.1 billion in Q3 2024. This also represented a drop of £0.5 billion compared to Q3 2023.
However, the value of inward M&A transactions in which an overseas company acquired a UK business stood at £7.8 billion in Q3 2024, up £1.1 billion compared to Q2 2024 and up by £3 billion on Q3 2023.
While the provisional estimated total value of outbound M&A deals in which a UK buyer acquired a foreign company fell to £4 billion compared to £4.2 billion in Q2, this still represented a £1.9 billion increase on Q3 2023.
Despite the drop in total deal volume and domestic deal value, the fourth quarter of the year is expected to deliver an increase in activity in the wake of the Labour government’s decision to increase capital gains tax from next April.
RSM UK partner and Head of M&A James Wild commented: “The threat of a capital gains tax increase led to a flurry of deals in the lead up to the Budget, as sellers fast-tracked their transactions to avoid any nasty tax shocks. The good news is that, while CGT rates were increased, they weren’t as extreme as some had feared, and are unlikely to derail deal activity.”
“Those considering selling their business are expected to continue to do so, with businesses at the smaller end of the market potentially accelerating deals to avoid increases in business asset disposal relief from April next year.”
According to Wild, the “bigger concern” will be the increase in employment costs resulting from a hike in employers’ National Insurance contributions, which he said risked impacting investor appetite and valuations, as well as potentially prompting business to scale back growth plans, which may subsequently affect their attractiveness to potential buyers.
“However,” Wild concluded, “businesses and investors will have gained more clarity from the Budget and US election result, and lower interest rates should lead to a gradual improvement in confidence. We expect to see deal activity increase next year, with private equity and international corporates leading the way.”
There are concerns that rising business costs following the Autumn Budget may push more companies into financial distress
Despite the incoming increases in capital gains tax, owners should not rush to sell their business if they are not fully prepared
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