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Will corporation tax rise make UK less attractive for deals and M&A?

by LLB Editor
4th Mar 21 11:20 am

The start of 2021 has been a standout year for investment and deals in the UK, data from Refinitiv indicates that the value of British firms sold to overseas buyers is the highest on record for this period. This comes following a year prior to Brexit which saw a much depressed market in M&As. It seems many firms are now looking to take advantage of deflated valuations to complete deals both in the UK and beyond.

Yesterday’s announcement from the 2021 Budget, however, could cool the appetite for UK companies with the looming tax rises on profitability, with corporation tax rising from 19% to 25% after 2023. Reduced net profits will likely make UK companies less attractive to prospective buyers who may otherwise have taken the final step to agree a buyout.

Complex deals and market conditions have so far increased the demand for accounting and advisory services to carry out essential due diligence and other consultancy work. This increase in activity has provided a big boost for the sector.

Chris Biggs, Partner at Theta Global Advisors – an accounting and consultancy disruptor – has commented:

“The start of this year has provided a big boost to the deals market in the UK, we have been instructed on a number of deals in the past few weeks, with many other firms seeing a similar uptick. The news from yesterday does come as a concern for the market in general, especially for foreign investors or buyers, for whom it is now less attractive to acquire UK firms.

This market has provided a tremendous amount of work and business for a number of professional services firms and the knock-on effect of a depressed deals market will be significant.

This year has really allowed smaller firms to compete in a way that has been difficult in the past. There are no more advantages to a massive office in Canary Wharf when everyone is working from home and now those overheads look like an unnecessary excess for clients comparing their options.”

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