Advice and financial planning businesses eyeing up M&A opportunities should try and secure a deal sooner rather than later, law firm Stephens Scown said.
Increased activity from consolidators during 2020 has seen high demand for quality IFA firms.
The impact of the covid-19 outbreak has also accelerated exit strategies for many businesses that have struggled to stay afloat on their own.
Giles Dunning, partner at Stephens Scown, urged advice and financial planning firms that wish to sell their businesses to do so before the Spring budget in 2021, as it is likely to bring tax hikes.
“Given the levels of government borrowing, public finances need repair and tax rises in the next budget cannot be ruled out, which could reduce the value of sale proceeds or make buying a firm more costly.
“Of course, we will not know until the next budget, but those likely to sell in the near future should at least consider possible tax changes with their advisers.”
Beware of tax hikes
Dunning believes that advice companies should take advantage of the cancellation of the 2020 Autumn budget and plan their sale, as these types of deals will undoubtedly require some time, often several months, to finalise.
With chancellor Rishi Sunak talking about “hard choices” to make in the near future, and with corporate and capital gains tax (CGT) the most likely to increase, there is no time to wait.
Many industry figures believe CGT will be brought in line with income tax, and corporate tax will be increased to 24% from the current 19%.
This means that net proceeds from the sale could be significantly reduced if these rumoured measures come into force in the next financial year, and companies will be under greater cash flow pressure as a result.
Dunning continued: “Although we don’t know what is being planned, it does look increasingly likely that the overall business environment for M&A will be harsher due to a number of factors.
“Rising unemployment and more distressed business sectors may also have a negative impact on business confidence.”
But those businesses that have successfully adapted to the pandemic and lockdown, and transitioned to a working from home model are “undoubtedly in a far better position than many others and this is reflected in ongoing demand from buyers”, he added.