A new survey has found that the majority of UK dealmakers believe that activity will pick up over the coming 12 months, following a year of slow dealmaking. Despite this optimism, concerns remain about the potential impact of Capital Gains Tax, with next year’s general election widely forecast to deliver a Labour government.
This year, the declining M&A trend seen during 2022 has continued, with activity hindered by factors such as high inflation and interest rates, the soaring cost of capital, tightening credit conditions and overall macroeconomic turbulence.
CIL’s Investment 360 Index survey, which polled dealmakers including private equity investors, corporate finance providers, management teams and business advisers, found that 84 per cent feel that dealmaking activity is currently low, compared to just 35 per cent at the same time in 2022.
However, 78 per cent of dealmakers polled in the survey said that they expect activity to improve over the coming year. While there is clear optimism, there is also a widespread expectation that any M&A recovery will be gradual.
Hopes of an improvement in M&A are heavily linked to the government achieving its target of two per cent inflation – with inflation standing at 4.6 per cent in October 2023, compared to 11.1 per cent a year earlier.
The Bank of England expects two per cent inflation to be reached by early 2025. This was largely similar in the CIL survey, with 45 per cent of respondents saying they expect the target to be hit within two years, while 10 per cent think inflation will fall to two per cent within a year.
40 per cent, however, believe it will take between three and five years for the target to be reached and five per cent don’t believe the target will be reached at all. While inflation remains high, dealmakers will have to continue to contend with higher borrowing costs, while there will be an ongoing impact on asset prices and consumer sentiment.
Interestingly, the survey also revealed that dealmakers generally do not feel that the recent increase in corporation tax has had an impact on investment. 77 per cent say that they have seen no impact on activity whatsoever, compared to 22 per cent who felt activity had decreased moderately. Just two per cent said they had seen a significant decrease, while three per cent reported a moderate increase.
Commenting on the survey’s findings, CIL senior partner Alex Marshall said: “The M&A community is, in general, more concerned about the impact of capital gains tax changes than corporation tax. Corporation tax has been weaponised in many countries in pursuit of corporate investment; bringing the UK closer in line with the G7 is a responsible move that hasn’t had much M&A market impact.”
Optimism about the UK's M&A market is also growing among SME leaders
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