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Last updated: 31 Mar 2021
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M&A market outlook: will the recovery continue?

Speculation around tax changes in the Spring Budget led to an acceleration of deals in March, but is this trend set to continue? We assess the outlook for the M&A market over the next few months and highlight key industries to watch.  
Tax change speculation causes a surge in deals

Tax change speculation causes a surge in deals

March was a bumper month for all in the M&A world. We  had our busiest month on record with five notable transactions completed within just the first two weeks, including lead advisory support on the sale of GuideSmiths to DCSL Software and investment secured by Universally Speaking

This high volume of deals in such a short time frame was partially driven by the Spring Budget and the speculation around potential tax changes. While tax changes should never be a prime motivation for transactions, they can be a useful catalyst to encourage business owners to consider their options and prioritise transactions that were already pencilled in the pipeline. 

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Anna-Louise Shipley

+44 (0) 20 7710 0377
shipleya@buzzacott.co.uk
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Tax change speculation causes a surge in deals

March was a bumper month for all in the M&A world. We  had our busiest month on record with five notable transactions completed within just the first two weeks, including lead advisory support on the sale of GuideSmiths to DCSL Software and investment secured by Universally Speaking

This high volume of deals in such a short time frame was partially driven by the Spring Budget and the speculation around potential tax changes. While tax changes should never be a prime motivation for transactions, they can be a useful catalyst to encourage business owners to consider their options and prioritise transactions that were already pencilled in the pipeline. 

Will it continue?

Will it continue?

Contrary to much speculation, no changes were announced to capital gains tax rates in the March Budget, and it therefore remains an excellent time to transact. 

In 2020 the overall volume of private equity deals fell by 26% compared to 2019, with this drop off most pronounced in Q2 and Q3. Though deal levels did begin to return in Q4, the market remains flush with cash meaning private equity firms and investors are keen to deploy their funds to good businesses. 

In the wake of COVID-19 with certain industries ground to a halt, strong businesses in appealing sectors are scarcer than they were 12 months ago. Businesses that have been resilient have been able to capitalise on the decreased competition for funding, resulting in more favourable transactions negotiated than we would have seen at the start of 2020.

Though uncertainty remains, we have reason to hope for a bounce back in the economy following Brexit and the emergence of the world from the pandemic. Combined with the motivation of looming capital gains tax changes, which may or may not appear in the Autumn Budget, this provides a positive outlook for the M&A market. 

Sectors to watch

Sectors to watch 

All businesses have had to make adjustments over the last year and while we are keen to see these return to former heights, some sectors have been able to seize the opportunity and flourish in the midst of these changes. In the M&A market, these are our sectors to watch:

Gaming

What was initially considered by some to be a COVID-19 bump - to the gaming industry’s advantage - is now apparent as a shift of gaming into the mainstream, with more people gaming than ever before and particular growth in the over 55s. The significant growth looks set to continue into 2021 and beyond.

Software 

While we may all be keen to return to offices and face-to-face meetings over the coming months, it is clear remote working won’t be going anywhere and corporate travel will decrease long term – which are good signs for the software space as digital capability becomes ever more important. The consolidation of this space looks set to develop. 

Consumer brands

The recession of 2020 had an undeniable impact on consumer brands but many have utilised technology to continue to drive marketing and build customer relationships. We expect the pent-up demand from the past year will drive growth as the world hopes to return to some form of normality. 

For us, this makes the gaming, software and consumer brands sectors our ones to watch over the next 12 months. While the money remains available, and the silence continues on changes to capital gains tax, we expect activity levels in the M&A market to continue to thrive.

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