Robust deal activity and sector trends: Shoosmiths’ M&A outlook

With another financial year recently drawing to a close, Shoosmiths’ M&A team have reflected on an incredibly busy 12 months - acting on deals with a total value exceeding  £10.4 billion in 2024 alone.

Strong activity continued in the financial and professional services and technology sectors, which accounted for over 30% of the firm’s deals by value. The size of deals remains high, with an increasing number surpassing the £1 billion mark. This trend underscores the robust demand and confidence in these sectors, driven by the ongoing digital transformation and the need for advanced financial solutions.

Navigating international and regulatory challenges

There was a general decline in the number of transactions involving an auction process, down to 5%. However, vendor due diligence (DD) remained relatively popular, accounting for 16% of transactions. This shift indicates a preference for more streamlined and controlled sale processes, where sellers can better manage the information flow and potential buyer interactions.

The National Security and Investment Act (NSIA) continues to be a significant regulatory consideration for deals, particularly those involving the defence, advanced materials, and advanced robotics sectors, which require mandatory approval. Alongside NSIA, Financial Conduct Authority (FCA) and competition clearance remain the biggest hurdles to completion. These regulatory frameworks are crucial in ensuring that transactions do not pose risks to national security and maintain fair competition in the market.

For Shoosmiths, its international practice continued to grow amongst clients in Europe, North America and Asia – supporting more international deals with the overseas targets.

Evolving deal structures and risk management

Purchase price and adjustments: Shoosmiths own 2024 market data observed that locked box accounts and completion accounts mechanics were equally favoured as adjustments to price, driven by the availability of audited or robust management accounts. While cash remained the largest element of consideration compared to equity or loan notes, payments were frequently deferred, and buyers preferred an earn-out structure linked to future business performance.

Split exchange and completion: A significant number of our transactions involved a material adverse change clause, but we increasingly see transactions where warranties are not repeated at completion. Just under 40% of transactions with split signing and closing followed this trend. This practice provides a safeguard for buyers, allowing them to reassess the deal if significant changes occur between signing and completion.

Limitation of liability: Having a financial cap on all claims arising from business warranty breaches is usual, but we saw an increasing trend of capping liability in respect of breaches of fundamental warranties. This trend reflects a balanced approach to risk management, ensuring that sellers are not unduly exposed while providing buyers with sufficient protection.

Sectors to look out for

As we reported in 2024, healthcare and technology were expected to be of sectors of significant interest – and that isn’t set to change in 2025. From an industry perspective, BCG’s 2025 M&A market outlook highlights relatively robust deal sentiment in the healthcare, technology, media, and telecommunications sectors (source: M&A Outlook 2025: Expectations Are High | BCG). Transportation industries (including airlines, logistics, and supply chain services) and the materials sector also present promising opportunities for increased deal activity. Investor caution remains in several sectors, including the consumer and industrial sectors—despite some recent large deals.

2024 demonstrated that M&A activity within the global market is looking to climb back to an upward trajectory – even if in a slightly slow and cautious manner.  Looking to the next financial year, major trends such as energy transformation, digitisation, and the rising importance of AI will continue to propel the M&A market to further growth. How quickly are we expecting that growth to bounce back? We will have to wait with cautious optimism and look to see how the M&A market responds to the new US tariffs introduced.