Forward outlook and budget considerations

Since the new government won the election in July, there had been considerable speculation regarding which taxes would be increased and by how much. Concerns of a substantial increase in capital gains tax rates (that never actually materialised with the actual increase being more modest) has undoubtedly resulted in a surge in deal activity before the 30 October budget. With this deadline, it is possible that some deals that would have completed in September could have, instead, drifted into October, suppressing Q3 statistics and moving them into Q4. Additionally, it accelerated deals that may otherwise have aimed for a Christmas or year-end completion. It remains to be seen if there will be a comparative lull in activity for the rest of 2024 due to this early surge in transactions.

The Autumn Budget introduced key tax changes impacting M&A activity, particularly in the private equity space. Carried interest will face higher capital gains tax rates, increasing to 32% by April 2025 and transitioning to be treated as income in April 2026. These adjustments may deter private equity interest in the UK market, potentially influencing deal volume trends in the coming quarters, though these changes were long expected. Increases to employer national insurance contributions and the national minimum wage, will increase costs for businesses and therefore potentially reduce valuations. It remains to be seen what effect the budget will have on deal volumes, though positive market forces could counterbalance any such impact. International private equity (backed) acquirers won’t be affected in the same way when it comes to the changes to carried interest; while the other tax increases could affect valuations, international acquirers could be well placed to make the most of any opportunities that present themselves.