What’s happening in the market? Investment Trends.

The first quarter of 2022 continues to see buoyant M&A activity

The first quarter of 2022 continues to see buoyant activity, as the UK emerges from the pandemic.

Recent statistics published by a leading mid-market platform, Dealsuite, who compiled the trends for the second half of 2021 are summarised below and indicated the following:

• The business services sector has seen the largest increase in transactions compared to the start of 2021, an uplift of 6%.
• Deal sizes of £10m+ rose by 9%in the second half of 2021, compared to the previous half year.
• The average multiple for all sectors decreased slightly from 5.50 in H1-2021 to 5.45 in H2-2021. Multiples vary between 3.7 (Construction & Engineering) and (Automotive, Transportation & Logistics) and 8.5 (Healthcare & Pharmaceuticals). This means that the average price of an SME varies by more than double, depending on the industry. Interestingly the UK and ROI multiples were comparatively higher to similar industries in Germany, France and the Netherlands
• According to advisory firms, age and a lack of succession is the most common motive for the sale of a business. The recognition that the firm is ready for a new type of manager is the second most common reason for an entrepreneur to sell a business.
• Over the past 10 years, the average age of a selling entrepreneur has been declining with tech start-up owners building up an entity then selling before moving to the next big project.

Our team of business advisors, tax specialists and accountants are working with entrepreneurs active in a wide range of sectors, helping them to maximise their investment in their business. Please see our guide for further details of the services and advice we provide.

Capital Gains Tax rates for individuals are still favourable. Business Asset Disposal Relief (previously Entrepreneurs’ Relief) at 10% on the first £1m gain (subject to certain conditions) and 20% on anything over £1m. These rates are very attractive, and who knows what the chancellor will do in the next Budget? It’s possible these rates may not be around for long!

Recent research published by the Office of National Statistics and Experian Market IQ shows bullish UK activity and it’s a trend which is keeping our team busy. We’re currently advising on a number of ongoing sales, and acquisitions.

Acquisitions. There is a lot of money flowing into private equity funds who in turn have the available cash for the for the right opportunities.

Mergers. There is an appetite for consolidation of businesses in specific sectors. We’re seeing bigger and better funded start-ups buying out smaller, and possibly lesser funded, counterparts.

Inward investment. The UK is still as a great place to do business and we’re seeing a lot of inward investment activity into the UK – most notably from China, USA, Australia and India.

ESG and the Race to Zero. is active. An important development is that as part of due diligence potential acquirers are asking businesses about their plans to become ‘greener’. This used to be a question for larger businesses, but is now a consideration in the SME space. At COP26 the UK legally committed to a net-zero emissions target by 2050 and over half of the UK’s largest businesses have signed up to the United Nations Race to Zero Campaign.

Not all acquirers will expect every target business to evidence it can be net zero, it is however expected that every business has some form of plan in place. Whilst having a sustainability policy alone will not help you sell your business (there are of course many factors), responsible businesses are thinking about the role they can play in getting the world to net-zero carbon and are formulating their plans.

Income tax relief and the EIS approved knowledge-intensive fund 
The government has allowed the introduction of an ‘approved knowledge-intensive’ fund that will:

• Require the funds to focus on investments in knowledge-intensive companies
• Give approved funds a longer period over which to invest fund capital (requiring 50% investment within one year of the fund closing and 90% within two years, compared to the current requirement of 90% within one year)
• Allow investors in an approved fund to set their Income Tax relief against liabilities in the tax year, or against their liability of the previous tax year, before the fund closes

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