Deal activity to increase despite Budget measures

The corporate mergers and acquisitions market can often be a fickle beast, subject to changes of mood and activity from known and unknown factors. In many senses it is an events business, driven by outside forces or confidence levels.

At this point in time, as we look ahead to 2025, Scotland’s M&A market is being driven by one particular event, albeit with a series of future milestones on the horizon which business owners have clearly marked in their diaries.

Our Corporate, Commercial and Regulatory team completed 42 transactions in October as businesses anticipated some form of tax changes as part of Labour’s first Budget in 14 years.

Although Capital Gains Tax was not raised to the expected levels, transactional activity in the team remained high in November with many businesses continuing to prepare for further reductions in relief from CGT in 2025 and 2026.

We are fully expecting to see a sharp increase in mergers and acquisitions in February and March in time for the end of this tax year.

We’re having lots of positive conversations with business owners at the moment – those looking to realise their assets after years of hard work, or those looking to grow with strategic acquisitions. It is a very busy market right now, and we would expect activity levels and completions to really ramp up in February and March ahead of the next step in the Chancellor’s laddered approach.

This level of activity is consistent across a wide range of sectors and geographies across Scotland particularly SMEs and family-owned enterprises. One emerging trend we are seeing is Vendor Induced Management Buyouts – VIMBOs – to be a attractive exit route for owners. In this case, the sales process is initiated by the business owner, who is typically in their 50s or 60s and looking towards some form of succession. A VIMBO is well-suited to profitable and stable businesses but perhaps where the exit options could be limited or where timeframe is limited, so the owner prompts the sale to either an existing or incoming management group and stays with the business and receives their consideration over a set period of time. Essentially, the seller is funding the acquisition.

We have been working alongside advisers Generis Corporate Finance on an increasing number of transactions, with many more anticipated in February and March before the start of the next tax year when reliefs are set to decrease further.

Robert Stewart, a partner at Generis Corporate Finance, said:

“Many business owners will take the next few weeks to properly assess where they are, and what the future looks like. We fully expect the wave of sales and disposals which occurred in the run up to the Budget, to pick up again ahead of the end of this tax period. For SMEs in particular, there is very much a sense of trying to protect those assets for their families, for existing management teams, or potential custodians who will grow what they’ve started.

“What we’re sensing from the business owners we’re speaking with is that there is a window of opportunity before the start of the next financial year to make the most of what they’ve spent years building.”