After the spring Budget back in March, the next major hurdle for the Conservatives is the upcoming general election.
All polling data points to a strong Labour majority, which is why it is no surprise that UK business is already positioning itself for the possibility of a Labour victory.
But what does the prospect of a Labour government mean for merger and acquisitions in the UK?
A pre-election uptick in M&A
Following a muted 2023 market, 2024 has brought fresh optimism for M&A activity.
The London Stock Exchange’s recently published data revealed blockbuster M&A deals more than doubled in Q1 of 2024, with the value of European deals climbing 60 per cent from a year earlier.
Add to this a recent Morgan Stanley note predicting a 50 per cent increase this year, compared to 2023 across global deal-making as funding costs, inflation and recession concerns abate.
The note also highlights several UK-listed companies as M&A targets, reasoning that their cheap price to the book value of their assets make them attractive.
Meanwhile, private equity firms, having resisted selling portfolio companies in a strained market, reportedly entered this year sitting on a record 28,000 unsold companies worth more than £3tn.
On top of heightened optimism for market movement, a change in government brings uncertainty and, as a result, UK business leaders will be carefully monitoring for signs they should look to exit, especially if they think that the tax environment will become less favourable.
Notwithstanding Labour’s recent confirmation that corporation tax will not exceed 25 per cent, there are still question marks surrounding the party’s borrowing and spending plans and how they will be financed.
This may tempt an acceleration in M&A over the coming months, led by those looking to preempt any post-election financial repercussions and potential increase to the costs of doing deals.
Clean energy investment balancing on an edge
Turbulence in M&A activity may well arise from Labour’s attention to clean and homegrown energy, which took centre stage in the run up to the party’s self-imposed manifesto deadline of February 8.
The party’s awkward climbdown on its 2021 pledge of £28bn per year borrowing for green spending demonstrates that 'fully costed' manifestos tend to take on the appearance of Swiss cheese when put under the microscope.
Adding to the UK’s already bloated debt pile may well have been a hindrance to ongoing work to bring down interest rates and inflation.
While a U-turn on a key commitment is unlikely to help with any perceived weakness in Labour’s economic credibility, if the initial market reaction to the chancellor’s Budget continues to be positive, then perhaps Labour’s best bet is 'less is more' as inflation continues to soften and interest rates are likely to follow course and reduce.
When it comes to big spending pledges pre-election, business owners may not wait to see if the grass is indeed greener on the other side and may decide now is the time to transact.
