Mergers & Acquisitions: Outlook on SME Transactions

By Toby Walker

Associate Solicitor

15 May 2025

Insights News

With the mergers & acquisition (M&A) market having been strained in recent months – somewhat due to economic pressures, including rising operational costs and changes in tax policies (such as the anticipated increases in National Insurance contributions and the national living wage), we are now seeing that the M&A landscape for small and medium-sized enterprises (SMEs) is experiencing a resurgence.

Tariffs may still be a word frequently mentioned in headlines and the true effects are still unknown but the combination of favourable economic conditions, increased investor confidence and strategic shifts within certain industries are driving the revival.

The Bank of England’s base rate has recently been cut to 4.25% and further cuts are anticipated – the macroeconomic environment is, therefore, increasingly supportive of M&A transactions as deal financing is becoming more accessible to buyers and is encouraging investment into opportunities of growth.

Private equity (PE) firms have also shown a heightened interest in SMEs. PEs are reportedly sitting on record levels on uninvested capital. As a result, they are seeking to diversify their portfolio with a variety of SMEs that could potentially support their own support and growth plans. SMEs are seemingly attractive to PEs as the valuations tend to be modest and the growth potential could be higher, thus chance of stronger “return of investment”.

Whilst there is a resurgence, SMEs are still facing a number of challenges in the M&A market:

• Buyer and seller price expectations may still be too far apart for an agreement to be reached. This may be due to sellers having valuations based on pre-downturn performance and buyers treading cautiously due to economic uncertainties that still remain.
• Due to buyers treading cautiously, there has been an increased focus on a more in-depth and considered approach to the due diligence stage – thus prolonging the transaction timeline and potentially making transactions not as appealing to at least one of the party.
• As touched upon above, buyers are having to consider the “updated” profitability and attractiveness of SMEs due to the economic uncertainties that remain – such as trade tensions, inflation still being higher than desired and the effects of recent fiscal policy adjustments continuing to implement themselves.

Some of the challenges can be overcome by engaging (i) a third party to provide a renewed valuation and (ii) a legal team to review the business as is, and provide guidance as to where the transaction could become more seamless (e.g. ensuring filings and policies are up to date, T&Cs are in order and areas of concern are flagged early on).

The overall landscape for the M&A landscape for SMEs is certainly promising for the remainder of 2025 and should you be seeking to buy or sell a business (not only in 2025 but also the near future), Taylor Walton can provide the valuable insights (including helping you get ready) and assist you in navigating your transaction.

If you would like to find out more, please contact our Corporate & Commercial team here. They would be happy to discuss the contents of this article and any relating questions you may have.

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Please note that the contents of this article are intended solely for general information purposes and should not be considered as legal advice. We cannot be held responsible for any loss resulting from actions or inactions taken based on this article.