This week’s budget contained few substantive changes of interest to the M&A market. The chancellor, as widely expected, chose to make this a relatively safe and ‘balanced’ budget, with a raft of smaller changes and some tinkering around the edges.
One announcement was that the government intends to make changes to Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs) intended to encourage investment in new and growing businesses. It is hoped that this will particular assist companies in higher risk sectors, such as technology. Full details have yet to be released but some specific proposed measures are doubling the amount an individual investor can put into EIS per tax year to £2 million and doubling the amount a company may receive under EIS and VCTs (both in certain circumstances).
With Entrepreneurs relief a key driver of investment and activity in the M&A sector I was pleased to see that the chancellor included in his budget a plan to consult on a potentially significant change to this relief. There is a possibility that the scheme will be expanded to allow shareholders who initially meet the 5% share holding requirement, to still obtain the relief even if the company dilutes the holding below this amount through subsequent share issues. It is hoped that such a change will allow companies to grow faster without fear of their existing shareholders losing out.
Perhaps the most troubling news from the budget was the announcement of the OBE growth forecast figures for 2017 and the following five years. Growth for 2017 has been revised down from 2% to 1.5%, followed by annual growth of 1.4%, 1.3%, and 1.5% in subsequent years. Whilst not entirely unexpected these figures will do little to reassure investors who already face uncertainties surrounding Brexit and the stability of the current Conservative government.
In my opinion this was, on balance, a fairly neutral budget with regard to the M&A sector. The potential changes to EIS, VCT’s and Entrepreneurs relief are encouraging but lack any real meaning whilst they remain in a planning and consulting phase. Many will have been hoping to see something bolder and more concrete from Mr Hammond, but will have to make do for now with an M&A market that is at least surviving in the current climate, if not flourishing.