Morning all, Craig McGlashan here with the Europe Wire from the London newsroom.
Anyone living in the UK would be excused for thinking that the budget had already happened given its dominance of the public discourse right now, but we’ve still got a couple of weeks to go.
Speculation around just what the Labour government is planning for its big fiscal event of the year is already having an impact on dealmaking, however.
We take a look at that this morning and speak to Perry Yam of BCLP to find out how dealmaking is likely to fare into the end of the year.
We also get Yam’s view on some other speculation, around private equity’s increasing interest in buying into law firms.
Big budget
Rampant speculation over what will be in the UK budget on November 26 is likely to hamper dealmaking in the country for the rest of the year, sources told me.
The Labour government is widely expected to raise taxes to help plug a £30 billion ($39.4 billion; €34.0 billion) hole in the public finances, but exactly what form those changes will take remains an unknown.
“The timing’s not great, because that’s at the end of November and then you get into silly season in December,” Perry Yam, private equity partner in the corporate transactions practice group in law firm BCLP’s London office, told me.
“Unless a deal is live, nothing new is going to kick off. So we are now looking at Q1 of 2026 in the hope rather than the expectation that there will be a slightly better feel-good factor come the start of a new year and people returning post-Christmas.”
Uncertainty over the budget is already having an impact on dealmaking. Just witness Blackstone’s potential take-private of Big Yellow, a UK self-storage company. Earlier this week, the pair won an extension from regulators to allow Blackstone more time to evaluate the potential deal, citing “the potential impact of the upcoming UK budget as it relates to the self-storage sector.”
Amid the myriad speculation around the budget, there has been a suggestion that property tax changes could be coming, potentially affecting interest in the self-storage sector.
A slowdown in dealmaking will be a further disappointment in a year that began with great expectations, before the announcement of US tariffs in April temporarily put deals on ice. That, added to the wider macroeconomic and geopolitical environment, also put a dent in company revenue and profit targets.
The dealmaking outlook could drop further if the budget raises income taxes, Yam said.
“Realistically, it boils down to the consumer. If they have got cash in their pocket and can spend it, all of that leads to the UK corporate world succeeding in generating revenues, which means they hit targets, they generate revenue, they create profits. They’re in line with their business plan. And as you progress through the food chain, of course, PE then sees businesses which become attractive.
“They’ve got all this dry powder that creates competitiveness. The competitiveness forces up pricing, the market becomes more buoyant, PE firms do deals and advisors become busy.”
Yam added that a submission by the British Private Equity and Venture Capital Association ahead of the budget, which focused on three priorities of the tax framework, international competitiveness and capital for high-growth businesses, will be “influential” if heeded by the government.
The Managed Funds Association also made three recommendations to the government, including simplifying reporting requirements, modernizing the regulatory framework for asset management and safeguarding the contribution of alternative asset managers to the economy.
In the meantime, private equity firms have been focused on portfolio management and secondaries, as well as add-ons, said Yam.
“We haven’t really seen a lot of proper auctions like the ’21-’22 era. It tends to be far more proprietary dealflow where PE shops have invested, in some cases, four or five years in following a company or a management team in the build-out and then pre-empting even before a process is organized. Somehow, they became far less rigid, far more informal, and a deal is struck or discussion is had in advance of a formal auction process.”
Legal push
Private equity firms have been investing in law firms in Europe over the last few years, with deals including Inflexion taking global law firm and alternative legal services provider DWF Group private at an equity value of £342 million and Alia Capital Partners investing in Spain’s ECIJA, which provides legal advice in governance, compliance, investigations, litigation, IP, data privacy, antitrust and transactions.
There have also been reports that some of the world’s largest law firms based in the US are also considering private equity investment, including by restructuring to allow outside investors access to revenues without breaking ownership rules.
But for Yam, private equity investing in law firms only makes sense for the type of companies where a buy-and-build model works, such as in providers of wills, conveyancing, personal injury, and so on.
These are businesses that run 100 or 200 cases at a time, often with a regional emphasis, similar to how private equity rolls up accounting companies.
“The prospect of a PE firm buying a large, international, sophisticated, corporate-led, finance-led law firm, I don’t see where that synergy is,” said Yam. “I can’t see how if a partner and their team that accounts for 5 or 10 percent of the revenue moves from one law firm to another would be consistent with a private equity approach. I can’t see how a private equity firm in that example would be interested in a business which year on year has no idea about where its profits will be, which fluctuates year on year, where there’s no growth.”
That tallies with the plans of Sun European Partners, which is focused on the UK consumer law market – a multi-billion-pound sector with thousands of acquisition targets, Alexander Wyndham, managing director, told PE Hub’s Irien Joseph in August.
“There’s a lot of virgin snow as you can expect because we’re one of the first private equity firms to be doing this, which means that there is room for decades of consolidation to come in the UK alone, and so we don’t see the need to look in geographies outside of the UK.”
Sun European has pursued a buy-and-build strategy via its portco Fletchers.
That’s all from me today. Rafael Canton will bring you the US Wire later today and Nina Lindholm is on Europe duty tomorrow.
Cheers,
Craig
