A month on from Liberation Day M&A persists
One month on from “Liberation Day”, Trump’s tariffs have hit US growth data and added to UK economic uncertainty, but that hasn’t derailed mid-market M&A. In some cases, it’s fuelling it, according to Mark Brockway, corporate finance partner at S&W.
Figures released on Wednesday showed that the US economy shrank 0.3% in the first quarter of 2025. The previous day, reports revealed the US administration had determined that the UK would not be in its first phase of its trade deal negotiations. However, Brockway says that concern for the future is as likely as optimism to drive deal activity, with some business owners deciding it is now or never when it comes to selling.
M&A activity in the mid-market, typically deals under £100M in value, was steady last year and slightly above the recent annual average. S&W and its’ partner firms in Oaklins International, a global network of M&A advisors, closed 385 deals in 2024. This compared to 339 the previous year, and deal completions continue in 2025.
“Despite recent market challenges, we are on a good run-rate and have closed nine UK deals across a range of sectors in recent months,” says Brockway. Oaklins took on over 100 new M&A mandates in just the first quarter.
Buyer appetite this year was initially buoyed by a more encouraging outlook. Crucially, the rising interest rates of previous years levelled off and began to fall in 2024, bringing borrowing costs down for potential buyers. At the same time, the amount of dry powder, the uninvested capital held by private equity firms, is still $2.1TN globally, despite a reduction since 2023.
For those thinking of selling, that has helped to keep prices propped up.
“Prices in some sectors like technology may have fallen from post-Covid heights but remain pretty good by historical standards,” says Brockway. That’s encouraging some business owners to take the plunge.
“It’s certainly not all doom and gloom, despite the worries about tariffs and global trade right now,” he adds.
Headwinds and tax challenges for business owners
There are some significant challenges for clients, however. Increases in employers’ national insurance from April hit some hard. Additional NI bills can reduce profitability materially, which will be compounded by a valuation multiple of perhaps eight times profits – not unusual, according to Brockway.
“Many businesses come to market with debt. On a £60M deal with £30M of debt, a £4m NI impact on valuation has just wiped out 13% of the equity,” he remarks.
Other tax changes announced in the 2024 Autumn Budget also make it more difficult for entrepreneurs to pass on their business or wealth. Capital gains tax increases, while not as bad as some feared before the Budget, have had an impact. So, too, have planned changes to inheritance tax (IHT). The reduction in business property relief will effectively put a 20% inheritance tax liability on family businesses worth more than £1m when the owner dies.
“In many cases, families may have to sell an equity stake, or the whole business, to pay the IHT, unless they sell before the change comes in or explore other estate planning options,” says Brockway. “They have until next April to act.”
In practice, it means making big choices in the next few months.
In the meantime, businesses face economic headwinds. Those include the NI changes, the impact of the US and potentially other new tariffs on international trade, and economic uncertainty closer to home; the Office for Budget Responsibility has slashed its forecast for growth for 2025 by half to below 1%.
Now or never: pressure to sell
Far from dampening activity, though, these uncertainties are another incentive to sell for many.
“A lot of business owners faced with this outlook are concluding that values are unlikely to improve for some time,” explains Brockway. “There are certainly challenges for the economy right now, but they will be difficult to resolve quickly. Waiting to sell, when many already delayed exit plans due to the Covid pandemic, is often an unattractive prospect for business owners seeking an exit or retirement sale.
“Taxes are going up and valuations might not get any better, so many owners who are planning to sell at some point are asking, ‘Why wait?’”
Even those who hope that things pick up have options, including a partial sale to private equity (PE). The growing number of “buy-and-build” transactions has been a key driver of activity over the last few years, notes Brockway. These follow-on acquisitions account for more than half of mid-market deal volumes, he says.
“PE investors are looking for owner-managed businesses they can add to existing companies in their portfolios, as well as for the target company to be the platform first deal for a buy-and-build PE investor, alongside the management team. Buy-and-builds bring down the blended cost for the acquisition of a group of businesses and enable them to find synergies,” he explains.
Business owners who are hopeful of an upturn, but want to realise some capital, can sell but retain a shareholding. “They can then achieve a partial exit while sharing in any growth in value from the strategy,” says Brockway.
Combined with the pressures to sell before taxes increase or the business environment deteriorates further, it is a viable option for an increasing number of owners. With PE buyers keen to create value and plenty of capital available, it’s helping to fuel deals.
“There’s still significant activity in the mid-market,” he says.
Favoured sectors for private equity
There are two caveats, however.
First, much of the activity focuses on a few specific areas. One is “tech-enabled” businesses, says Brockway, where technology, such as automation or some form of AI, is helping cut operational costs while the wider industry struggles with rising prices and wages.
Another area of interest is businesses with recurring revenues that offer regular, predictable income, often subscription based. Related to this, businesses tapping into non-discretionary spending (such as services to meet regulatory requirements) are also seeing strong investor interest.
“In an unpredictable economic climate and against a background of rising costs, these are the types of businesses that are increasingly attractive to buyers,” says Brockway.
The second caveat is that, even where deals are completing, they are taking longer. Business owners used to expect a sale to take six to nine months. It is now closer to a year. Buyers are in less hurry to lock in prices, and due diligence and trading updates are more likely to raise issues requiring attention in an increasingly uncertain economic environment.
“It’s just taking longer to get successful deals over the line,” says Brockway.
Keeping communication open, and buyers and sellers engaged, is critical to ensuring acquisitions go through. So is avoiding unnecessary delays. The requirement to clear transactions under the National Security and Investment Act (NSIA) is a good example, says Brockway. The act applies to acquisitions or investments in 17 designated “sensitive areas” of the economy, from advanced materials and AI to energy and transport.
A well-prepared clearance typically takes about a month to obtain, but buyers and sellers often don’t realise it’s needed until late in the day, delaying completion further. Anticipating such issues can prevent problems, while an incorrect application can void a transaction completely.
“Dealing with these kinds of issues early gives you the best chance of getting the deal over the line,” says Brockway. “Buyers are still keen for the right business, but in this environment, you need to plan for as little friction as possible.”