Episode 15: Budget Special & 2026 Predictions

0:02Welcome to the Dealmaker Uncut Podcast where we speak to some of the UK's most exciting entrepreneurs and hear their investment journeys. We'll discuss the challenges, successes and lessons they've learned along the way with expert deals commentary from Jonathan Boyers, head of Alvarez & Marcel Corporate Finance, and me, Chris McGuire, executive editor at Business Cloud. Welcome everyone to this very special episode of the Dealmaker Uncut podcast with Alvarez & Marcel. Today, multi-award winning dealmaker himself, Jonathan Boyers, will be giving his view on Rachel Reeves' budget. I might give a view or two of my own as well and what it means for the deal-making sector.

0:41In the second half of the show, rather than answering questions from the audience, Jonathan will be reflecting on 2025 from the deal's perspective and looking into his crystal ball and making some predictions for 2026. I do need to apologise, though. Unfortunately, the OBR have released this very funny podcast before it was recorded. Jonathan, a crazy day. How do you assess it? Well, I suppose, thinking about it, It's not as bad from a deal-making point of view as a lot of people were worried about. People had been worried about possible increases in CGT rates. People had been worried about things that might happen to non-DOMs, things like that.

1:19So quite a lot of the things that people had been worrying about haven't happened. Having said that, I mean, there are some quite important changes here, aren't there? So the cost of running a business seems to have increased. So I think we are going to see some businesses will be less profitable after today than they were before. But it does seem that there's been quite a lot of extra taxes going to be paid. It's just been done in a more surreptitious way than directly increasing the tax rates. Obviously, Labour would tip to increase income tax, and then they did a U-turn on that after it would have broken their manifesto pledge as well.

2:04I was listening to Rachel Reeves give it, and it was described as the third largest tax-raising budget since 2010. It's a tax and spend budget. You know, taxes have gone up, spending has gone up, the cost of welfare has gone up as well. What will be interesting is whether or not the death by 1 ,000 cuts type tax rises will be enough to push those company owners who are thinking about selling over the edge into selling. So what I'm going to do is I'm going to pick your brains, really, about the budget. But I want to take you back a little bit before. Before today's budget, I think you've done seven deals in the last few weeks, which always makes me believe that when there's a big fiscal announcement coming, companies and company owners want to sell their business.

2:43So you probably saw a bit of a bounce on that. But what did the entrepreneurs say to you? So there have been a number of deals I've completed across the market in the last few weeks where people have been rushing to get deals done ahead of the budget because they were worried about what might happen. Everyone knew that there is a problem in the public finances and people were worried that the CGT rates might go up. So people have been rushing to get deals done. I know that our teams were working late last night to get a couple of things over the line last night. and so I think there'll be quite a lot of people will now be breathing a sigh of relief I think the question is I think that they talked about headroom above the sort of stability rules were about 21.7 billion pounds whether that's enough to get get them through the next year or so or are we going to find that the next budget we've got the same questions about whether there There needs to be more tax.

3:44So I don't think necessarily that business will be thinking, OK, now we can breathe a sigh of relief and just get on with it. Minimum wages increase, so certain sectors are going to be definitely going to be affected. But, yeah, so a lot of people have been rushing to get deals done and have done. I don't think it was quite as many people as in previous years. I'm still reasonably optimistic about the deals market over the next 12 months I think the fact that CGT has not gone up I think that is a relief If you're a milkshake drinking, EV driving entrepreneur living in a£5 million house you will feel the pain and we share your pain not that I drink milkshake, drive an EV car or live in a£5 million mansion A lot of talk before the budget of entrepreneurs decamping to Dubai an area that you know well having worked there for a short period of time as well do we think that's likely to happen so again we there were there were stories in the news about people leaving um leaving the country worrying that there may be an exit charge levied um on wealth um from today um there's some quite high profile cases in the last few days um and we you I know that a lot of our clients over the last year or so have been moving abroad.

5:05So it's not been made up. It's definitely been happening. It's a definite trend and it's definitely cost the country some tax. And, you know, the people, wealth creators leaving is just not a great thing. I don't think there's anything that's come out of today that means that people will suddenly be wanting to leave. But I think it's a general mood is whether the reality is that the government are creating an environment for growth. And, you know, is the British business, can it galvanise itself and start to drive for growth? A small number of new steps taken to encourage entrepreneurship at the smaller end.

5:53And so, you know, that might have a small impact. but I don't think this budget has really changed that environment that much. There was a couple of things stood out for me. I mean, this has been described as the most leaked budget ever. In fact, the Deputy Speaker stood up to complain about the amount of leaks before Rachel Reeves stood up, and the irony that the entire budget had been effectively released by the OBR before Rachel Reeves actually uttered a word, sort of, you know, was the icing, the cherry on the cake, so to speak. One thing that stood out for me from a deal-making perspective was that the Chancellor's launched a three-year stamp duty holiday for new debut companies on the London Stock Exchange to attract listed companies.

6:34Now, the back story to that is a lot of companies have exited the London Stock Exchange and are increasingly looking over the Atlantic to look to New York as well. I think Revolut are one. The hope is that this move will get more companies to IPO in the UK on the London Stock Exchange. Do you think that's a good thing? Well, I think anything that encourages more access to the UK market has got to be a positive. I mean, I've been waiting for a while for the IPO market to become more active again. It's been quiet for a year or two, maybe longer. We have a team starting on Monday, actually, who specifically focus on public company advisory.

7:21and so we've been putting our money where our mouth is in that regard. I think anything that helps attract listings into London has got to be viewed as a positive. I think the wider environment, the wider regulatory environment and the economy, growth in the economy, the investor community are probably bigger issues though. One other thing that caught my eye before I ask you what caught your attention is there was a widening of the eligibility requirements for programmes including SEIS and Venture Capital Trust, you know, investment to broaden access to investment incentives, you know, especially beyond the startup stage as well.

8:04So one of the things I often hear from founders is how difficult it is to raise investment, especially beyond that startup phase, that gap between startup to scale up as well. Now, obviously, the proof of the pudding will be in the eating, but is that something, and obviously the budget's just happened but your immediate reaction to that? So it's notoriously difficult to raise funding for early stage businesses and so tax incentives to do that, the AIS scheme is a good incentive and if that's being extended then that will be a positive. It's notoriously difficult and there are a whole range of different sources of funding but the reality is it's hard sometimes to spot, to sift out the high quality investment opportunities for investors from the plethora of other investments and so anything that helps that community is good but early stage fundraising is a tough gig.

9:08What caught your attention, Jonathan? So obviously the sheer amount of tax increases that have been produced by the budget is startling. Obviously the increased tax rate on dividends up to£120 ,000, the 2 % increase in tax rates on investment income. And, well, you know, they're going to have a notable impact on people's, how people think about extracting money. I also noticed that they're going to dilute the tax benefits of employee ownership trusts. I think the tax relief now is going to be half what it was. You know, a lot of people have done EOTs and wish they hadn't now. and so I think they are now much less attractive than they were and like I say I don't think we'll see anywhere near as many of those going forward.

10:14So but like I say the most important thing for me is that the capital gains tax rates haven't gone up. I'm just looking at a story here the Chancellor has confirmed that dividend tax rates will increase by two percentage points from April 2026. So a lot of people, a lot of entrepreneurs pay themselves dividends, don't they? That's going to get more expensive in terms of tax. Yeah, yeah, yeah. In terms of, I think that's notable. Yeah. So in terms of, you know, if I said to you, you know, are people going to be inclined to set their own business up? This makes it slightly harder. I don't think that this budget has done much that will make people think I'm not going to start up a business.

11:00You know, if the capital taxes had gone up significantly, that could have had an impact. I think that the environment for fundraising is still strong. You know, there's one or two other things. There was a lot of people who'd been talking about, will national insurance be imposed on professional partnerships I've not seen that that's happened so a number of the things that people were worried about haven't happened but overall the you know the country is going to pay a lot more tax and they I suppose the amount of public spending has increased so you know some people will be pleased to see the limit on child allowance being lifted I personally I had wondered whether over the next few years it's probably going to be necessary to look at spending on, I don't know, disability allowances.

11:57There's a lot of spending on benefits. And I heard some discussion about whether or not the public pensions can continue to be paid at the rate they are. I'm not surprised that this budget hasn't changed those things, but they are still there and at some point will need to be addressed. I think political analysts are a bit like football pundits who predict the result of a match. And everyone's forgotten what they predicted when the result comes out. But if you look at some of the predictions before the budget, the Times said property tax for homes worth more than£2 million. Yep, definitely. If you've got a big house, you're going to be taxed more.

12:32You know, the iNewspaper predicted Rachel Rees plan to target universities with a tax on international student fees. It's fascinating how many things weren't mentioned, such as that, such as AI was barely mentioned. I mean, I work as a tech journalist. AI is going to change the world and it's going to change this landscape as well. You mentioned LLPs. A lot of talk about the gambling industry was going to be hit and they have. Probably not quite as hard as some people perhaps thought they were. I know you love your bingo. So I know bingos, it's a good day for bingo players all over the world. And City AM reported four in 10 UK-based entrepreneurs would weigh up whether to leave the UK, depending on Rachel Reeves' speech, to contain either a hike to capital gains tax or a shake-up of inheritance tax gifting rules.

13:20Nothing's changed on the inheritance tax rules. I know that in London today the farmers have been demonstrating. I don't think they've got any sucker from that. And where people have been worried about inheritance tax rules or tax on global assets, nothing changed. So those people will still be worried and there could still be people leaving the country and that fearful of those things because nothing's changed there. So it's not a probably not as bad as some people thought, which is typical, you know, politicians trying to, you know, prepare us for the worst doomsday scenario. Would that be your take?

14:00Yeah, like I say, as a corporate financier, as somebody involved in the sale of businesses, I personally breathed a sigh of relief today. one interesting thing that I've heard mentioned is that there's been a consultation issue that might lead to the reduction of restrictive covenants on for employees which given my own experience recently over the last year or so year or two I think that that's very interesting to observe yeah the one that caught my attention was salary sacrifice as well there's there's so much said and you try and listen to it again and actually one thing I will say I thought the behaviour I listened to on the radio of some of the politicians wasn't particularly edifying at all it was shouting, it was shouting over politicians, yeah I know you get that but it felt, it sounded like a classroom at times, so time for a quick break when we come back, Jonathan's going to reflect on 2025 and he's going to take a little look into his crystal ball into 2026

15:24Welcome back to the second half of the Dealmaker Uncut podcast. we've just given our take and Jonathan's take on the budget we've done it very much on the hoof in terms of it only just happened as well but we wanted to try and you know do this podcast because we know we've got a growing audience Jonathan I'm going to talk to you a bit about 2025 it's been a big year for you you've been all over the place what trends have you seen this year so I I've mentioned this a few times before that if you are a business owner and you own a business that is a tech-enabled business in almost any sector, a business that is showing growth, that is robust with a strong management team and a good business plan.

16:09You can raise private equity money and you can run a sale process and it will be well attended. There's lots of private equity money looking for a home and there are still trade buyers both in the UK and certainly overseas to buy businesses. So you can still run, you can still sell businesses for great multiples. For other businesses in older style industries, it's been tougher. And I think that's in those sectors is where the M &A market has been tougher. Undoubtedly, in 2023, the deal volumes fell very dramatically. And while everybody's been expecting increases in multiples, sorry, in the deal volumes completing, it's never quite met expectations.

16:59And, you know, this year, you know, our observation is, I mean, obviously, we've been a business that has been growing in momentum all year. So our deal completions have been growing every month. And I think we're at the point now we've completed seven deals in the last four or five weeks. I think we'll be completing on average a deal a week and growing. But that's our business. I think the market in general has been flatter than that. But I still believe that there are vendors who want to sell their businesses who've been waiting. And I do expect to see that deal volumes will increase over the next year.

17:36There's been a bit of a correction in vendors' price expectations. I think people have finally accepted in those older style industries that they need to be a bit more realistic on value. So I think that will lead to more deals. But like I say, there's a lot of very high quality businesses being sold at very high prices at the moment as well. It's hard to believe Donald Trump's inauguration for his second term was only in January this year. It feels like he's been around for ages again. His tariffs had a big effect on the global economy at the time. Is the Donald Trump factor still a factor? Yeah, I think the macro factors, the tariffs, obviously in certain sectors have caused all sorts of problems.

18:18It's more the uncertainty has been the issue. But, you know, sectors that are being tariffed, you know, they might have to change their views of export sales. Businesses that are selling to the US are definitely going to be reassessing the future. but you know the general state of the UK public finances have created uncertainty in industry and the uncertainty about what the Chancellor would do you know it's all there's political uncertainty around which is never positive for businesses and so you know it's been a It's been a difficult environment. I think going forward, a lot of businesses really need to start to focus on how to plan in an environment of uncertainty, because it's going to carry on.

19:14I've just come back from the Web Summit in Lisbon, which is the biggest tech conference in Europe. 71 ,000 delegates there. Phenomenal, really, actually. A bit too busy for me, if I'm being honest. All about AI. And you've only got to look at the valuations of some of Europe's tech businesses. So there's a company called Lovable. It's just been valued at 6.3 billion. Fuse Energy is valued at 5 billion dollars. Vinted is, I'm sure you're a big fan of Vinted, is reported valued at 8 billion euros. And what was interesting having been there is that AI is a double-edged sword. So what you're seeing is you're seeing these absolutely hyper-growth valuations of tech companies.

19:50I mean, Lovable is only a couple of years old and it's doing 200 million ARR already. But I think the biggest threat to AI companies is AI, because other people are coming up on the rails at break net speed and doing what these other established AI companies are doing. With that in mind, what do you think we can expect in 2026? So you mentioned AI and particularly in the US, there's so many new technology businesses developing around the whole area of AI. The share prices have been really, really high. People have been talking about a bubble over there and when it will be corrected. and you know I was over in New York a few weeks ago and I'm you know there was a couple of my clients here that I met over there who were talking to US private equity houses and US trade buyers because they thought that they could get an extra turn or two if they looked at selling to our buyers over there just because the pricing over there has been so much higher Maybe a correction over there is due.

21:00Like I say, for 2026, I think that the number of deals in the market will increase. I think the amount of private equity money available that needs to be deployed will drive more deals. I think the vendors are being a bit more realistic in sectors where that's necessary. but we are just seeing more and more technology businesses coming through where there are really attractive propositions as well. We're expecting to see a bit more activity in the public markets as well and so that would be a welcome change for next year. I don't know if our listeners and viewers will be able to hear in the background a helicopter flying overhead, we're in London.

21:45Now I can only assume, Jonathan, that that's your private helicopter about to land on the roof to whisk you away somewhere exotic. That's all for this special episode of the Dealmaker Uncut podcast. Really enjoyed doing it. Thank you very much, as always, to Alvarez and Marcel. Been a bit different to the normal ones? Yeah, no, I've enjoyed it, Chris. Don't forget to subscribe to the podcast, tell your friends and family, and follow us on social media. As always, my name is Chris McGuire, but the star of the show is Jonathan Boyers. Thanks, Chris.

22:36We'll see you next time.