As we enter the last quarter of 2024, and with the new UK government about to announce its first Budget, ICAEW head of corporate finance David Petrie gives his thoughts on the outlook for M&A.
The traditional return to work after the summer holidays has felt a bit odd this year, but at least it seems to be accompanied by a general uptick in M&A activity – albeit with many deals being earlier stage transactions. At the end of this month the Labour government will publish its first Budget, the mood music being this was all the previous government’s fault and now taxes will have to rise and government borrowing must increase, so we will redefine what is public debt. We will see what that means for capital gains tax (and business investment), pension savings and carried interest, and whether changes to that set confidence back, or trigger more deal activity in certain parts of the market.
Trade buyers need to be confident of prospects – not simply investing in the UK due to the relative weakness of sterling – as does private equity, which needs to be well motivated, funded and with access to open, diverse debt markets.
As featured in last month’s Corporate Financier cover story, IPOs and London’s capital markets have had a tough two years, but advisers are seeing signs that activity is likely to pick up from the start of next year. Loosening of the Listing Rules should help, but let’s not get too carried away; there is no silver bullet. The balance of regulation between protection of investors and the burden on listed companies is key, but of itself that won’t attract companies to list or remain on our exchanges.
As sure as death and taxes, you will never eliminate investment risk
As sure as death and taxes, you will never completely eliminate investment risk. As Charlie Munger, Warren Buffett’s right-hand man who died at the end of last year, once put it: “Capitalism without failure is like religion without hell.” Of course, I’m not wishing hell upon any of us and proportionate reporting and regulation is vital – it’s how that is defined and where boundaries should be set that will always be contentious.
Businesses most successfully list where the investor base understands those type of businesses and perhaps that’s where the UK should focus, rather than chasing the once high, but now falling, tech valuations in the US.
Infra questions
Remember remember the fifth of November. This year, aside from the small matter of it being US election day, it’s also the date when the faculty and the UK Infrastructure Bank (UKIB) will host an investment summit. There have been several announcements already relating to substantial infrastructure spending since the election. Less than a week after it had taken power, the Labour administration announced the creation of a National Wealth Fund, backed by £7.3bn and run by UKIB. A further announcement regarding UKIB and the British Business Bank working more closely under the umbrella of the National Wealth Fund is expected imminently.
As most of you will know, both UKIB CEO John Flint and British Business Bank CEO Louis Taylor sit on the Corporate Finance Faculty board, which will give us unique insight to the progress of investment and the undoubted challenges they will face.
Despite an updated industrial strategy still being eagerly awaited, some detail on allocation of the £7.3bn has already emerged: £2.5bn on ‘clean steel’, £1.8bn on ports, £1.5bn on gigafactories, £1bn on carbon capture and £0.5bn on green hydrogen.
The plan is to attract £22bn of private capital. And that additionality is absolutely key to the success of such a fund. It should target areas that need government support and not simply flow to support the global infrastructure funds and the UK assets they might have invested in regardless of any taxpayer risk-sharing.
New ICAEW CEO
I’d like to welcome Alan Vallance to the role of CEO of ICAEW. He’s one of our own – he’s an ACA with corporate finance experience. He worked on various due diligence projects as a young adviser and in industry and, while at the Royal Institute of British Architects, spun out its software business with the backing of faculty member firm LDC.
Your faculty, as always, is here to be vigilant for members when it comes to changes to regulation that will impact how members do business, advise clients or invest. With our broad church of membership, we pull together a wide range of views to establish a coherent position for the M&A advisory community. And we have the additional weight of the backing of ICAEW.
The new government’s plans are predicated on growth. Investors and corporate financiers can play a key role in delivering sustainable growth that’s needed.