- Strategic growth & business transformation
Organic growth is harder to secure in today’s environment of modest economic expansion. SMEs are increasingly turning to M&A as a lever for change and access to new markets, capabilities and distribution to ensure that they remain competitive. For many, acquisitions are not just about scale but also about future-proofing their business model, particularly for those businesses with an aging shareholder value base.
- Tech reinvention
Businesses are acquiring firms, particularly in the consulting area, that can benefit from AI and the promise to enhance margin, data analytics and automation capabilities. This trend extends beyond tech from industrial services to the healthcare and defence sectors as companies seek digital reinvention to remain relevant and protect their margins against erosion from inflation forces and reduced growth.
- Private equity pressure
Private equity-backed companies are reaching maturity which is prompting exits and recapitalisations. At the same time, private equity (“PE”) firms are reshuffling portfolios. For SMEs, this creates both opportunity and competition — as PE exits bring quality assets to market and increase buyer selectivity thereby often reducing some buyer interest.
The overall market
Overall, the M&A market is also demonstrating some structural shifts, particularly an increase in divestitures and carve-outs. More companies are spinning off non-core or low-growth assets to sharpen strategic focus or to fund higher-priority acquisitions. For SMEs, this creates attractive opportunities: they can acquire carved-out assets at realistic valuations or become acquisition targets themselves as corporates increasingly adopt a “we want, we need” approach to acquiring niche businesses with distinctive capabilities.
The 2025 statistics have not yet been published, but SME deal volumes so far appear broadly in line with 2024. In 2024, equity investment into smaller businesses totaled £10.8 billion across 2,048 deals, representing a 15.1% decline in deal count versus 2023. One notable exception are Employee Ownership transactions, which bucked the trend with nearly 500 deals completed. However, the November 2025 rise in Capital Gains Tax (“CGT”) to an effective 12% is expected to moderate that momentum.
Employee ownership on the increase
A notable trend during 2025 has been the growth of Employee Ownership Trusts (EOTs) as an alternative exit and succession route - but why now? From our experience at Avondale, many owners are seeking value-driven exit that preserves the culture of their business and rewards their employees. Additionally, there is the tax advantage: Even following the November 2025 reform that reduced CGT relief from 100% to 50%, EOTs remain highly tax-efficient, with an effective CGT rate of 12% compared to 24%. EOTs are increasingly seen as a way to retain independence, avoid PE pressure, and secure long-term stability. For many SMEs, EOTs offer a credible alternative to trade or PE sales, especially where cultural continuity and employee engagement matter. However, it should be noted that trade deals tend to have the big advantage of more cash up front and a faster de-risk for owners.
The four corners of strategic M&A
Beyond the tactical market drivers the four corners of M&A still represent sound buyer economics and strategy and buyers with all four will place the highest value on a company.
|
Corner |
What it means / What to look for |
|
Economies of Scale |
Cost savings or efficiencies from increased scale e.g. combining operations, bigger buying power, lower per‑unit costs, access to cheaper financing as a larger entity. |
|
Synergy |
Revenue or value enhancement through combining complementary operations, not just cost‑saving, but cross‑selling, shared capabilities, better market reach, or operational leverage. |
|
Shareholder Value |
The acquisition should increase value for shareholders of both buyer and (potentially) seller growth in business value, improved returns on capital, enhanced long‑term value creation beyond short‑term gains. |
|
Positive Disruption (or Strategic Disruption / Capability Gain) |
Bringing in new skills, capabilities, technologies (AI), or business models e.g. acquiring intellectual property, talent, or niche capabilities that the buyer lacks, potentially enabling entry into new markets or preventing competitive displacement. |
Valuation trends
By mid-2025, UK median multiples for corporates and SMEs fell to 10.8 × EBITDA, circa 10% below the late 2024 highs reflecting financing pressures and economic uncertainty. This was not a global impact and US valuations, for example, were more resilient. Smaller and mid-market deals where Avondale operated remained relatively strong with average multiples to 7.6 × EBITDA.
What this means for SMEs
2025 has been a year of quality over quantity and for SME owners:
- Interest rates remain a constraint: While central banks have started easing, borrowing costs are still high compared to the pre-pandemic era. This limits highly leveraged deals and traditional PE buyouts, making cash buyers more competitive.
- Buyers: Opportunity to acquire strategic assets at more realistic valuations.
- Sellers: Prepare for more scrutiny and selectivity - strong fundamentals and clear growth stories against real time numbers and forecasts matter. Being sale-ready is essential and the presentation and metrics are critical as buyers will only acquire against certainty.
M&A in 2025 has been about strategic transformation, tech-driven reinvention, disciplined deal-making, and innovative succession models like EOTs. For SMEs, the door is open, but route to success will depend on clarity, preparation, and agility.
Contact us
If you would like more information about Avondale's services or case studies on our recent M&A deals, please visit our website at https://avondale.co.uk. Alternatively, if you would like a free consultation with one of Avondale’s experienced M&A advisors, please call Avondale on +44 (0)20 7788 8250, email us at av@avondale.co.uk or fill out the attached form to arrange a free consultation to discuss your ‘perfect’ business sale.
This article has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for any specific tax, legal or accounting advice. Regulated advice bespoke to your circumstances is essential.
