October 2024
Deal Frenzy Sweeps the UK: Entrepreneurs Rush to Sell Amid Fears of ‘Painful’ Budget
August and September can be notoriously slow times within the M&A scene, as CEOs, professional advisors and Directors seek harbour and relaxation in sunnier climbs in their second homes, yachts and spend time with family during the long school holidays. Such quietude has been cut short this year, with Prime Minister Keir Starmer offering increasingly somber sentiment for the upcoming budget. The denounced state of government finances has supposedly left no choice, but to impose fiscal tightening as a means of ‘balancing the budget’. The suspected million shoulders on which these burdens will lie are those of business owners – prompting hastened market action in an attempt to precede hiked tax rates.
Recent compounding hysteria has led to a full-blown frenzy, as entrepreneurs and business owners rush to sell before potential changes to capital gains tax (CGT) hit their wallets. With the Autumn Budget fast approaching, there’s widespread anxiety that Chancellor Reeves will target CGT and Entrepreneur’s Relief, sparking a deal-making late summer unlike anything seen in recent years.
According to a recent report by the Financial Times, UK tax advisors are warning that a “frenzy” of transactions is underway, driven by fears that the government may align CGT rates with income tax, potentially doubling the rate from 20% to as high as 45% for higher-rate taxpayers. The scramble is reminiscent of a fire sale, as owners look to lock in the current, more favourable rates before any changes take effect.
Entrepreneur’s Relief, which currently reduces CGT to 10% on up to £1 million of lifetime gains, is also in the crosshairs. Widely seen as a major incentive for business creation and growth, its potential abolition would significantly alter the calculus for those looking to exit. If you’re a founder selling a business, losing this relief could mean parting with a much larger chunk of your proceeds to the taxman.
Cook Corporate experienced a similar “gold rush” to complete company sales when the conservatives reduced the Entrepreneur’s Relief lifetime allowance from £10 million to just £1 million. Back then we worked round the clock for clients to close before the midnight deadline.
This frenetic environment isn’t just about getting deals done quickly—it’s also driving some hasty compromises on valuation and terms. As sellers are prioritise speed over price, buyers gain negotiating leverage, potentially blunting EBITDA multiples for valuations or enlarging earn-out provisions. The pressure is palpable, and many are willing to leave money on the table today to avoid a higher tax burden tomorrow.
The situation is also sending ripples through private equity (PE) and the wider investment community, with funds seeing a surge in opportunities. Buyers are leveraging the urgency of sellers, often securing favourable deal terms amid the heightened competition to offload businesses. With typical 5-8 year time horizons, PE houses recognise the arbitrage between fundamental value and current distorted market prices. Capitalising on broader market fear, the buy-side is finally able to employ the dry powder it has been stacking up since 2021 highs.
For now, the frenzy continues. The fear of missing out—on lower tax rates—is proving too strong for many to resist. What’s left in the wake of this activity will depend largely on the detail of the Budget and how the market adjusts in response. The sell-off may well go down as a turning point, marking the end of an era of tax incentives that have fuelled British entrepreneurship for decades.
As we await the Chancellor’s announcements, one thing is clear: the rush to beat the tax man has transformed the UK deal landscape, if only temporarily. But with so much uncertainty hanging in the air, the real question is whether this frenzy represents a strategic move or a reactive leap into the unknown.
Here at Cook Corporate Solicitors, we are certainly experiencing a significant spike in deal activity for both the sell-side who may wish to precede impending hikes, and the buy-side who wish to capitalise on the opportunity. This M&A boom seems to be shared with our peers and other advisors in the space.
If you lie on either end of the spectrum, and want to act before the opportunity lapses, please do not hesitate to contact us as there is still time before the autumn statement……………… but only just.