What the M&A landscape will have in store for SMEs in 2024

SME Publications/ SME XPO 2024

By Jonny Parkinson, above, managing partner, Marktlink

2023 was a challenging year for many SMEs, bringing with it high interest rates, geopolitical instability, funding shortages and the ongoing impact of Brexit. As 2024 begins, business leaders will be hoping for a brighter year ahead, with greater growth opportunities.

When it comes to the M&A landscape, the economic slowdown also signalled a reduction in dealmaking, but there’s light on the horizon and SMEs are optimistic that we’re coming out on the other side as conditions improve. Findings from our recent Marktlink Monitor, which surveyed entrepreneurs across Europe, revealed that six in ten UK business leaders expect the domestic M&A market to improve in the next 12 months.

Appetite for acquisitions 

The second half of 2023 showed promising signs, with deal volumes increasing 19% year-on-year in the fourth quarter. In 2024, this upward trend will likely continue as business leaders recognise opportunities to grow their market share via consolidation. Appetite for acquisitions will also be driven by strategic acquirers inevitably showing an interest in resilient businesses that have retained good performance despite tough market conditions.

Encouragingly, nearly half (47%) of business owners have considered buying another business in the past year, and of these, 64% are planning to do so in the next five years. UK SMEs are also most likely to have considered making an acquisition when compared to their European counterparts.

Seeking a sale  

Whilst appetite for acquisition increases, the burden of recent challenges and the pursuit of a stronger future for their business, will lead some SME owners to seek a sale. Almost a third (31%) of business leaders have considered selling their business in the last 12 months recognising the value of de-risking and taking some cash off the table should things not improve as expected. For a lot of company owners, selling to a financial or strategic partner is increasingly appealing to provide financial security for them and their business.  

The appeal of cross-border deals 

Cross-border deals will be a key driver of increasing M&A activity in 2024 as SMEs focus on securing their market presence and supply chains. For businesses, cross-border M&A provides compelling opportunities for greater risk mitigation, resilience, and opportunities.

Owners have historically been reluctant to consider a sale to a competitor within their industry. However, the increasing appetite from international buyers, some of whom are facing challenges accessing the UK market post-Brexit, offers an attractive proposition to UK shareholders. It allows them to realise value now and sell to someone who understands the business and the market but isn’t a direct competitor. 

Opportunities for business leaders  

Whilst funding was a hurdle for SMEs in 2023, it’s widely reported that private equity houses are sitting on significant volumes of ‘dry powder’ following a slowdown in deal volume. The value of deals launched by private equity firms targeting UK companies dropped 41% from $70.5bn in 2022, to $41.4bn in 2023. As such, SMEs that have successfully weathered the storm will be well placed to attract private equity interest.

The Marktlink Monitor showed that 50% of entrepreneurs think that now is a good time to buy a company and as economic uncertainty and market volatility begin to show signs of easing, it should make it easier for acquirers and sellers to make more accurate valuations and agree on deal prices.

Overall, the outlook for M&A activity looks more positive for the year ahead, and SMEs are right to be optimistic that the market will improve. With a general election expected before the end of the year, some business owners may be keen to complete transactions before any potential changes to the personal tax environment, such as increases to Capital Gains Tax. However, with an increasingly complex regulatory landscape to navigate, and enduring uncertainty, it’s advisable to consult an M&A adviser to provide guidance for a sale or acquisition.

SME Publications/ SME XPO 2024