Capital Gains Tax and confidence in some sectors drives domestic and inward M&A activity in Q3

Data released by the ONS reports the value of domestic M&A (UK companies acquiring other UK companies) in Quarter 3 2020 increased by a £4 billion from Q2 (£0.4 billion), totalling £4.4 billion. However, the sizable increase seen in Q3 2020 can largely be explained by a few notable domestic acquisitions with values in excess of £100 million.

Inward M&A (foreign companies abroad acquiring UK companies) in Q3 was valued at £2.9 billion, a slight increase of £0.8 billion on the previous quarter (£2.1 billion), yet £2.2 billion lower than Q1 2020 (£5.1 billion).

Kirsty Sandwell, partner and national head of corporate finance at RSM, comments: ‘The surge in M&A’s in Q3 represents the backlog of deals that come through after businesses opened up and enjoyed a full quarter of relatively unimpeded activity. It also represents the confidence regained in boardrooms of sectors which benefited from government funding during the pandemic.

‘Looking ahead, science and technology remain front and centre with the Chancellor’s recent £15bn commitment to push Britain towards “scientific super-power” status. Companies in biotech and the wider tech sector will have enjoyed his ringing endorsement. Expect to see this sector lead on M&A’s in Q4 and post-transition. Businesses will also remain acutely aware of the Chancellors commitment to infrastructure – the multiples are high and there is lots of interest.

‘The continued speculation around a rise in Capital Gains Tax will likely drive volumes up in Q4 and Q1 2021 as people look to dispose of assets now. 

Brexit also remains unresolved. Be it a deal or no-deal, this remains a focus for businesses. But looking at M&A activity, rather than the political backdrop as a predictor of business sentiment, the data is encouraging.’