A new Prime Minister, an old question

Are political developments likely to accelerate exits, or will fundamentals continue to dominate dealmaking decisions?

Political developments rarely drive M&A activity on their own. However, they can influence financing markets, tax policy expectations and investor confidence, all of which play important roles in determining transaction timing and execution.

The resignation of Keir Starmer and the emergence of Andy Burnham as the frontrunner to become the UK's next Prime Minister have brought political and budgetary considerations back into focus for dealmakers. While the immediate market reaction has been relatively measured, the implications for mid-market private equity and corporate M&A warrant careful consideration.

The resignation of Keir Starmer and the emergence of Andy Burnham as the frontrunner to become the UK's next Prime Minister have brought political and budgetary considerations back into focus for dealmakers. While the immediate market reaction has been relatively measured, the implications for mid-market private equity and corporate M&A warrant careful consideration.

Recent history demonstrates that political events can materially impact M&A activity, particularly when they influence financing markets or tax policy expectations. The most obvious example remains Liz Truss and Kwasi Kwarteng’s 2022 mini-budget, which triggered significant volatility in gilt markets, increased borrowing costs and led lenders to reassess financing terms across a number of transactions. The unfunded £45 billion tax cuts severely damaged market confidence, causing the pound to plunge to a record low of $1.03 against the US dollar, spiking government borrowing costs, and forcing the Bank of England to intervene with an emergency £65 billion bond-buying programme. The result was a number of deal processes being delayed, repriced or restructured as debt markets adjusted to the new risk environment and investors questioned the UK's fiscal credibility. A more recent example was the 2024 Autumn Budget, with anticipation of potential changes to capital gains tax prompting a noticeable acceleration in deal activity as business owners sought to complete transactions ahead of any policy changes.

The key question for investors, sponsors and business owners is not whether a change in political leadership will fundamentally alter the UK deal landscape. Rather, it is how increased political uncertainty may influence the cost of capital, tax planning considerations and transaction behaviour over the coming months.

While political headlines inevitably attract attention, looking ahead, we consider three areas likely to be most relevant to M&A participants.

1. The Capital Gains Tax question

Of all the potential policy developments being discussed, Capital Gains Tax (CGT) remains the issue most likely to influence deal activity. Although no formal proposals have been announced, reports suggest Burnham remains open to closer alignment between CGT and Income Tax rates. While the scope, timing and likelihood of any reform remain uncertain, the possibility alone may begin to shape transaction decisions.

For business owners considering an exit, this uncertainty may create an incentive to accelerate sale processes ahead of future fiscal events. Similar behaviour was observed in advance of the 2024 Autumn Budget, when concerns around tax changes contributed to increased deal activity as vendors sought greater certainty over their tax position. The experience reinforced an important point: uncertainty alone can influence deal timing, even before any policy changes are formally announced.

Private equity firms may also be monitoring any discussion around the taxation of carried interest, which could have implications beyond individual transactions and extend to fund economics more broadly.

While it remains far too early to make strategic decisions based on unconfirmed policy proposals, tax planning discussions are likely to feature more prominently in boardroom conversations over the coming months.

2. Fiscal policy, budgets and regional investment opportunities

Perhaps the most significant area for dealmakers is the potential for future fiscal changes. Any meaningful shift in fiscal policy could have implications for transaction volumes, investor sentiment and vendor behaviour, with market participants appearing more focused on the composition of the Treasury team and the timing of future budgets than on any the leadership transition itself.

One area in particular that may receive increasing attention is regional growth and devolution. Burnham's long-standing advocacy for greater regional autonomy and increased investment outside London could create opportunities across parts of Northern England and the Midlands, particularly in regionally focused sectors such as manufacturing, logistics, energy transition and technology-enabled services.

Whether this translates into meaningful investment flows will depend on future policy decisions and funding commitments. However, investors assessing regional platforms and buy-and-build strategies may increasingly factor potential place-based investment initiatives into their growth assumptions.

3. Sector-specific regulatory risk

Burnham has previously indicated support for increased scrutiny of certain sectors, including utilities, real estate and other asset-intensive industries. While specific policies remain unclear, investors evaluating businesses operating in regulated markets may wish to place greater emphasis on regulatory and tax diligence.

At this stage, the focus should be on understanding potential exposure rather than altering investment appetite.

Despite the political uncertainty, the underlying drivers of UK mid-market M&A remain intact. Private equity firms continue to hold significant undeployed capital, succession-led opportunities remain plentiful, and sector consolidation themes continue to support transaction activity.

For most investors, the current environment should be viewed as an opportunity to stress-test assumptions rather than pause activity altogether. Financing structures, regulatory exposure and tax considerations deserve renewed attention, but the fundamental rationale for investing in quality UK businesses remains unchanged.

The areas to watch most closely in the months ahead are the appointment of key Treasury personnel, the timing of future fiscal events and any substantive indications regarding Capital Gains Tax policy, which are likely to have a greater impact on deal activity than the leadership transition alone.