The impact of COVID-19 on the M&A market unsurprisingly suppressed domestic deals in Q2 2020, valuing them at just £300 million, the joint-lowest since Q4 1975. But there was a rebound in Q3, with deal value rising from £4.4 billion, according to sources here, writes David Little, a Partner in our Corporate & Commercial team.
This figure, driven by several large transactions, was even a sizeable increase on the £1.7 billion recorded in Q3 2019 (despite total transaction volume dropping by 162).
As BSR wrote in this insight, technologies such as video conferencing, virtual data rooms and even drones, have all enabled companies to close deals during the pandemic: “If dealmakers want to do more than just wait out the pandemic, then leveraging the latest available technology will allow deals to be done. After all, there are no shortage of potential acquisitions out there, as COVID-19 continues to impact thousands of businesses.”
The outlook for 2021
Towards the end of the year, Reuters observed that Governments are becoming the new activist investors: “Not unlike the financial crisis, the pandemic liberated states to get more involved in the private sector. Bailouts have left them holding stakes in distressed companies, while security concerns have emboldened politicians to bolster strategic companies. The vital but often missing ingredient is good governance.
“The belief that governments should get out of the way of business was already out of date before Covid-19. Mass privatisations of utilities and postal services often failed to deliver promised improvements in efficiency and service. Taxpayer-funded bank bailouts in 2008 ended the swagger of financial institutions.”
So where does that leave the outlook for 2021? Well, last year proved that predicting anything can be foolish. But this year there are several likely occurrences that will have significant implications for business owners and dealmakers, and which don’t fall under the title of educated guessing.
Firstly, the government-backed stimulus programmes that have kept many businesses afloat, such as the Coronavirus Business Interruption Loan Scheme (CBILS), the Future Fund, the Bounce Back loan scheme and the Coronavirus Job Retention Scheme (furlough), will all end at some time in 2021.
The Chancellor knows that to end these schemes, whilst social distancing restrictions are still in place, will result in collapse for thousands of companies. This in turn will create further acquisition opportunities for those looking to take advantage of business distress.
Elsewhere, proposed changes to legislation could impact business acquisitions in 2021. Particularly relevant are planned changes to pre-pack acquisitions, which would increase requirements on the buyer during a pre-pack deal in which they are connected to the business in administration.
Thirdly, the Treasury is considering increases to Capital Gains Tax. Currently, CGT has a personal tax-free allowance of £12,300, after which it is charged at 10 per cent for basic rate taxpayers and 20 per cent for higher/additional rate taxpayers.
Under the proposals from the Office of Tax Simplification (OTS), the tax-free allowance would be cut to between £2,000-£4,000, while the tax itself would be brought in line with income tax, which stands at 40 or 45 per cent for higher and additional taxpayers.
This will have a considerable impact for anyone selling their business. We will be watching the Chancellor’s Spring Budget closely.
To see more of Reuters’ Breaking views predictions, click here.
David Little is a Partner in our Corporate & Commercial team. Should you require any further advice or assistance, please contact us at firstname.lastname@example.org
The above is accurate as at 12 January 2021. The information above may be subject to change during these ever-changing times.
The content of this note should not be considered legal advice and each matter should be considered on a case by case basis.