The impact of the COVID -19 pandemic during 2020 does not appear to have had any direct impact on the level of corporate M&A activity in the UK and this looks to continue throughout 2021. There still seems to be an appetite for deals and a return to high EBITDA multiples. Private equity (domestic and international with particular emphasis on the USA) has also maintained its interest in the sector and will probably do so for some time. This, together with the strength of the US dollar and the continuing interest of the US private equity market in midmarket deals, are all good signs for a healthy 2021. If you add to this the prospect of entrepreneurs relief being discontinued in the March 2021 budget or other substantial changes that could be made in the Capital Gains Tax regime, there seem to have been an avalanche of M&A deals commencing in the last quarter of 2020 all having hard completion dates prior to the end of February 2021. If the Chancellor does decide to leave Capital Gains Tax largely untouched in his forthcoming budget or the changes in tax rates are less draconian than anticipated, then there is no reason why M&A activity will not continue at a healthy level throughout 2021.
Brexit has clearly had an effect on the industry but this has largely been constructive as brokers, in particular, have sought to acquire or incorporate European Community domiciled subsidiaries to ensure as smooth a transition as possible. Whilst the central banks of many offshore jurisdictions have been overrun by such applications, most financial services businesses were able to put into place appropriate arrangements before the New Year deadline. We should now see a continuing flurry of activity in this sector as insurance entities seek to finalise their transitional arrangements into more permanent arrangements in most cases resulting in the establishment of permanent business arrangements in appropriate offshore jurisdictions. We would expect to see this activity levelling off towards the end of the second and beginning of the third quarter of 2021.