UK – At a turning point?

Sectors

A broad range of sectors proved attractive in 2024. Consumer continued to be the most active sector by volume, with over 25% of deal volume and over 20% of deal value. Financial services targets comprised nearly 17% of value and 13% of volume and tech, real estate and energy had over 10% each in terms of deal value. It is likely that these will continue to be hot sectors in terms of M&A activity in 2025. The year also saw a particular focus on investment trusts (with one activist targeting seven trusts in December alone) which we expect to continue into 2025.

Legal trends and developments

July 2024 saw a re-writing of the UK Listing Rules (UKLRs). The intention behind the new rules was to increase the attractiveness of London as a place to list and to remain listed for instance enabling UK listed companies to be more agile when executing significant M&A. The requirement for a shareholder vote to approve significant transactions has been removed (although a vote is still required for a reverse takeover, where the target is as large as or larger than the buyer) and so UK listed companies should not be disadvantaged in competitive M&A processes, as the removal of the requirement to obtain shareholder approval means that the associated conditionality required in the share purchase agreement, and uncertainty as to whether approval will be obtained, has also gone. 

The new prospectus regime, expected in 2025, will make secondary capital raisings easier for listed companies, with the FCA proposing that a prospectus will only be required if the company is issuing shares that represent more than 75% of those already listed.

New merger control thresholds were introduced from 1 January 2025, with the turnover-based threshold that determines whether a transaction is in scope raised from £70 million to £100 million and a new “small merger safe harbour” which exempts transactions from merger review where each party’s UK turnover does not exceed £10 million. There is also a new acquirer-focused test which gives the Competition and Markets Authority jurisdiction to review a merger where: (i) one party has an existing share of supply of a category of goods or services of at least 33% in the UK (or a substantial part of the UK), and a UK turnover exceeding £350 million; and (ii) another party has sufficient UK nexus. This is aimed primarily at capturing certain vertical and conglomerate mergers, in particular acquisitions perceived as reducing dynamic competition and risking the development of new products or services.

From February 2025, the application of the UK Takeover Code will be narrowed to focus on UK incorporated companies that are, or have in the last two years been, listed on the Main Market or AIM (or other UK regulated markets or multi-lateral trading facilities) – this will not result in radical change but will make life easier for companies that delisted more than two years ago and other unlisted plcs and private companies that currently fall within the scope of the Code – sometimes entirely unwittingly.

Outlook for 2025

We are hopeful – even cautiously optimistic – that M&A will pick up in 2025. There is significant pent-up demand for deals, with PE firms needing to do deals and corporates keen to use M&A to drive strategic change – but only at the right price. With the significant elections of 2024 behind us, we believe that with the right tools – to navigate valuation gaps and reduce regulatory risk – obstacles can be overcome and agreement reached.