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| CGT reform to boost M & A’s |
| Written by News Desk | |
| Wednesday, 13 February 2008 | |
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by David Scrivener, director of Corporate Finance, Ensors
2008 promises to be an exciting year for M & A activity. Changes to the Capital Gains Tax (CGT) regime, the ongoing ‘credit-crunch’ and general uncertainty in the economy may lead some advisers and commentators to predict doom and gloom for the industry. I’m more optimistic. I’m expecting that at the smaller mid-market end, there will still be appetite and opportunities to do deals. Fundamentally, owners of businesses will still need to find exits and banks will still need to lend money to make money (albeit they may take a more cautious approach). We have seen a rush of activity with vendors gunning for the 5 April 2008 deadline which was to be expected ever since Mr Darling stood up and announced he would increase CGT on the disposal of business assets from 10 per cent to 18 per cent. The very recently announced “Entrepreneur Relief” concession (or back-track if you are cynical) should offer relief to many and effective tax rates on a great deal of transactions will remain unchanged even after 5 April 2008. We are actively planning for all of our clients affected by the changes to CGT with the aim being to minimise their tax bill and, most importantly, maximise their proceeds. The credit-crunch doesn’t yet appear to be affecting appetite for funding in the smaller mid-market although expectations on pricing are perhaps more reasonable than they were 12 months ago. Economic uncertainty is always difficult to predict and, if I could do it with certainty, I’d be a very rich man. What is equally difficult is to assess its impact on the local business community. I believe that particular sectors will struggle locally – particularly those on the high street and certain capital intensive industries with high levels of borrowing. Every problem, however, creates an opportunity and we are likely to see more distressed sales and pre-packed administration scenarios. This will still fuel the M & A sector even if the values involved are not top dollar. The continued investment in the UK by overseas buyers provides another good reason to be positive. We are currently negotiating on transactions that involve European, Middle Eastern and US acquirers – all looking to penetrate particular sectors of the UK market. All in all, if current activity is anything to go by, we are not predicting a downturn in M & A activity. Deals may have different challenges but then I’ve never yet seen an easy one!
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