Capital Gains Tax – What Does This Mean for FM Mergers and Acquisitions?
The Office of Tax Simplification (OTS) released a new report in response to the Chancellor's request in July 2020 around Capital Gains Tax (CGT). At a time where public finances have been rocked due to the ongoing pandemic, this has certainly increased anxiety for business owners seeking to sell their business.
This disparity is one of the main sources of controversy in the OTS consultation. Whilst this can be justified as rewarding risk and promoting enterprise, this rate of disparity can distort business and family decision making and can create an incentive for taxpayers to effectively re-characterise income as capital gains.
With this anticipation of a change in CGT, what does this mean for the M&A market within Facilities Management? After a year of navigating through a turbulent socio-economic backdrop, underpinned by a global pandemic and the United Kingdom’s separation from the European Union, the potential of a higher tax environment will cause further pressures on business owners and exit strategies.
Within the Facilities Management industry, M&A has been on the rise within the last few years. In 2018 there was a total of 90 deals of under £850million, driven by a steady level of mid-market activity with the average deal value for sub-£100 million deals in the FM sector in 2018 increased by more than 50% compared to 2017(ii). This trend looked set to continue with an advancing and maturing market place and increasing use of disruptive technology. One of the key benefits of M&A for both FM businesses and their clients is they can reach a high level of operational efficiencies and effectiveness, expanding their strategic and tactical planning and ultimately broadening their total FM offering that enables them to become a one-stop-shop for FM services.
The M&A thesis within the FM market still stands although whilst CGT changes have yet to come into place we are already witnessing an acceleration in exits with business owners looking to deliver a transaction before the start of the new tax year. We have also had an increase from our network in clients searching for advice regarding other tax-efficient solutions post-April 2021 such as Employee Ownerships Trusts. We have been looking to market leaders Grant Thornton for their thoughts on this topic and found this article recently published around EOTs to be of great benefit:
If this topic resonates with your current needs and you would like further consultation, please contact our M&A specialist – Danny Woodcock at the FMC Network.
0121 450 5000
danny.woodcock@fmcnetwork.co.uk
