M&A activity remains subdued in Q3, despite increased appetite from overseas investors

Deal activity remained sluggish in Q3 2024, albeit an uptick is expected in Q4 as sellers sought to complete ahead of any potential capital gains tax increases in the Autumn Budget.

Today’s ONS quarterly M&A statistics show the total combined number of cross-border and domestic mergers and acquisitions (M&A) transactions involving a change in majority share ownership was 436 in Q3 2024, down from 479 the previous quarter. The value of domestic M&A (UK companies acquiring other UK companies) was £2.1bn in Q3 2024, £0.9bn lower than the previous quarter, and down on Q3 2023 (£2.6bn).

The value of inward M&A (foreign companies acquiring UK companies) in Q3 2024 was £7.8bn, a £1.1bn increase on the previous quarter, and £3bn more than Q3 2023. The provisional estimated total value of outward M&A (UK companies acquiring foreign companies) in Q3 2024 was £4bn, £0.2bn less than Q2 2024, and £1.9bn higher than Q3 2023.

James Wild, partner and head of M&A at leading audit, tax and consulting firm RSM UK, said: “The threat of a capital gains tax increase led to a flurry of deals in the lead up to the Budget, as sellers fast-tracked their transactions to avoid any nasty tax shocks. The good news is that, while CGT rates were increased, they weren’t as extreme as some had feared, and are unlikely to derail deal activity. Those considering selling their business are expected to continue to do so, with businesses at the smaller end of the market potentially accelerating deals to avoid increases in business asset disposal relief from April next year.

“The bigger concern is the surge in employment costs coming down the tracks as a result of increasing employers’ National Insurance contributions since the Budget. Not only does this risk having a knock-on effect on investor appetite and valuations, but businesses may also have to scale back their growth plans, which could affect their attractiveness as an acquisition target.

“However, businesses and investors will have gained more clarity from the Budget and US election result, and lower interest rates should lead to a gradual improvement in confidence. We expect to see deal activity increase next year, with private equity and international corporates leading the way.”