M&A Guide 2025: UK

While the 2024 M&A environment continued to face the headwinds of the previous three years, the second half of last year saw an uptick in cross-border transactions. Despite market pressures, M&A volume in EMEA hit $841 billion in 2024, up 10% from the two-decade low reached in 2023. The UK further asserted its dominance in the European M&A landscape in the fourth quarter of 2024, accounting for more than 31% ($54 billion) of all EMEA deal volume.

Take-private transactions (i.e., when a publicly traded company returns to private company status as a result of a sale) remained a key feature of the 2024 M&A market and reached their highest number on record, with 95 deals in Europe worth a combined $80 billion. In the UK, take-privates accounted for approximately 14.28% of the value of all UK transactions in 2024, compared with approximately 11.20% in 2023, according to Dealogic.

In terms of M&A market drivers, public and private M&A both play an important part in the UK market, but private M&A deals make up a significant majority of UK-target M&A deals. Public takeovers have a prescribed process under The City Code on Takeovers and Mergers (the Takeover Code), as administered by the Panel on Takeovers and Mergers (the Takeover Panel), whereas the structure and process of private acquisitions are a matter of negotiation between the buyer and seller.

Latham & Watkins advised on a number of significant transactions in 2024, including acting for Ericsson on a new joint venture with some of the world’s largest telecom operators to combine and sell network application programming interfaces on a global scale to spur innovation in digital services.

Furthermore, Latham advised Darktrace plc, a global leader in cybersecurity AI, on its public-to-private recommended takeover offer by Thoma Bravo, a US private equity and growth capital firm. The acquisition valued Darktrace’s entire issued, and to be issued, ordinary share capital at approximately $5.3 billion.

After subdued deal activity in 2023, the 2024 M&A environment showed signs of a rebound as inflation and interest rates began to stabilise. The 2024 inbound UK M&A deal value (based on target nationality) was up to its 2022 levels at £79 billion in 2024, following a drop to £42 billion in 2023, according to Dealogic.

Looking ahead, the sentiment in the M&A environment is cautious optimism. An expected driver of activity is the pent-up demand due to a build-up of record levels of ‘dry powder’ that needs to be deployed. Furthermore, European and UK regulators are experiencing pro-growth pressures, which could result in more favourable outcomes for the ‘right’ deals that promote the international competitiveness of European and UK businesses.

One of the most significant factors influencing deal structures in 2024 was the low availability and high cost of traditional debt financing. The challenges faced by firms in sourcing debt at reasonable rates has meant that private equity and venture capital bidders have struggled to implement long-term financing arrangements in the post-completion phase, impacting bidder returns and capital availability. As a result, certain private equity and venture capital firms that could not fully fund transactions pressed the pause button on investments.

Strategic bidders with committed but undrawn capital, however, could afford to be more flexible in how they deployed capital and were therefore more active in this space. This was seen in the uptick in mega-deals in 2024, with 37 transactions at over $10 billion, driven by corporates, which accounted for over 70% of deals.

Private capital seeking opportunities to deploy dry powder also meant 2024 was a banner year for take-private transactions, which globally reached more than $200 billion. Take-private deals in Europe reached their highest number on record in 2024, with 95 deals worth a combined $80 billion. Notable transactions include CVC’s $6.9 billion acquisition of investment platform Hargreaves Lansdown plc and Thoma Bravo’s above-mentioned acquisition of Darktrace plc (both of which Latham & Watkins advised on).

Another key influence was the heightened pace of M&A-related shareholder activism campaigns. For example, Anglo American’s (AA’s) $3.775 billion sale of its Australian steelmaking coal business to Peabody Energy and $1.1 billion sale of its 33.3% minority interest in joint venture Jellinbah Group Pty Ltd to Zashvin Pty Ltd. Latham advised AA on both these transactions, as part of AA’s defence of BHP’s rejected takeover bid. Carve-out transactions are expected to be a major theme in 2025, with Smiths Group plc’s announcement in January to break up, in the face of activist shareholder pressure, just one example.

Private equity acquirers continued to be active in the UK M&A market, albeit at lesser levels than in recent years. Continued challenges in financing markets in 2024 led financial sponsors to look to non-traditional lenders and equity co-investors to finance deals. The general partner-led secondaries market continued to experience growth as the range of accessible exit routes for funds narrowed across the IPO and M&A markets, compounded by the need of limited partners to realise liquidity; notably, the structuring of continuation funds for ‘trophy’ assets.

However, many private equity assets have become too large in value for additional secondary transactions. Further opportunities to acquire high-quality assets at lower multiples are expected to continue to drive deal volume, and the related recovery of acquisition financing markets should help to drive M&A activity in 2025.

In terms of legislation and the regulatory bodies that govern M&A activity in the UK, the UK Companies Act 2006 (the CA 2006) applies to public and private companies registered in the UK. While the CA 2006 does not govern M&A activity as such, its requirements dictate the way that deals by UK companies are effected.

The acquisition of private companies is a matter of negotiation between the buyer and seller, and no regulated offer process is required. In non-regulated industries (i.e., other than financial services, telecoms, media, and pharmaceuticals), deals are not typically subject to input from regulatory bodies, save for competition and foreign direct investment (FDI) matters. Public acquisitions are governed by the Takeover Code, a principles-based set of rules issued and administrated by the Takeover Panel.

The end of the Brexit transition period on December 31 2020 marked the end of the European Commission’s (EC’s) status as a ‘one-stop shop’ for the review of mergers relating to the UK meeting monetary thresholds. This means that if a merger satisfies the jurisdictional thresholds of the EU Merger Regulation and the UK’s Enterprise Act 2002, the Competition and Markets Authority (the UK’s principal competition regulator, or CMA) and the EC may conduct parallel assessments of the same merger in their respective jurisdictions.

The Financial Conduct Authority’s (FCA’s) radical overhaul of the UK’s listing framework came into effect on July 29 2024. A new listing category for equity shares (commercial companies) has replaced the previous premium and standard listing segments for commercial companies, creating a simpler, more flexible framework for UK listings that is capable of accommodating a wider range of IPO candidates.

The new regime aims to foster a more dynamic and competitive listing environment, while ensuring that the UK remains a leading global financial centre. With a number of companies with preparations for a UK listing under way, increased momentum in IPO activity in 2025 and 2026 is anticipated. In terms of the impact on M&A, the removal of the requirement for shareholder approval of significant transactions has eased the challenges listed companies face when undertaking M&A.

In the world of public takeovers, the Takeover Panel has introduced a minor but significant change to its practices, with the introduction of private sale processes. Such processes enable target companies looking to sell themselves to control a limited number of potential buyers privately, with a relaxation of the requirement to name bidders with whom the company is in talks in the event of a lead.

The UK government’s pro-growth agenda has seen it issue a strategic steer at the start of 2025 to the CMA to support and contribute to economic growth. This has been linked to the recent change in the CMA’s leadership with the appointment of Doug Gurr as interim chair of the CMA. While the impact of these changes on dealmaking remains to be seen, the expectation is of a more favourable antitrust and regulatory environment for M&A relative to recent years.

A common misconception about the UK M&A market is that public transactions cannot be consummated by way of merger. The CA 2006 does, in fact, provide for merger by absorption for UK public companies, but these provisions are generally not used and a scheme of arrangement is more commonly seen. This approach contrasts with other jurisdictions, in particular the US, where mergers are frequently encountered.

An area that is often overlooked by parties involved in M&A is that buyers do not appropriately attend to the consolidation of group companies immediately after closing, resulting in continued administrative and financial burdens (for example, filing annual accounts) to correctly maintain newly acquired dormant or inactive subsidiaries.

Dealmakers are increasingly using AI technology to conduct more efficient due diligence in M&A transactions. It is now routine for dealmakers to use virtual meeting technology and electronic signature platforms to negotiate and close transactions, and this looks set to continue. On the other hand, cybersecurity preparedness has become a paramount technological concern for companies, as sophisticated and costly attacks are on the rise.

The acquisition of control of a public company is regulated by the Takeover Code and the Takeover Panel. A bidder may choose to stake-build to obtain a toehold in a public company. However, depending on the timing of such an acquisition and the form of consideration, stake-building may set a floor price and fix the form of consideration for any future offer. Furthermore, acquiring 30% of the voting rights in a public company will require a bidder to launch a mandatory cash offer for the remainder of the shares it does not own at the highest price it has paid.

In addition, any dealing giving rise to speculation, rumour, or an untoward movement in the public company’s share price may require an announcement (if the acquirer is considering making an offer for the whole company), while disclosures will also be necessary once certain thresholds of ownership are crossed.

A takeover offer will usually be subject to an extensive set of conditions, including:

• Securing acceptances carrying more than 50% of the voting rights in the target (or, in the case of a court-sanctioned scheme of arrangement, the requisite 75% target shareholder approval);

• Antitrust and regulatory approvals;

• The bidder’s shareholder approvals;

• Listing of consideration shares (when applicable); and

• Conditions dealing with the state of the target’s business.

A bid cannot be subject to conditions that depend on the judgement of the bidder. Additionally, bidders seeking to rely on a material adverse effect, or similar bidder protective condition to not proceed with an offer, require the consent of the Takeover Panel, which applies a materiality test with a high bar (requiring the circumstances to be of considerable significance and aiming to strike at the heart of the purpose of the transaction) before it will permit an offer to be lapsed.

In public takeover offers, break fees (when the target pays the prospective buyer) are now largely prohibited, whereas reverse break fees (when the prospective buyer pays the target) are not prohibited. Only in limited circumstances can a break fee be offered; for example, a break fee may be offered to a ‘white knight’ making a bid in competition with a hostile offer that has already been announced (subject to such fee being de minimis and payable only upon the first offer becoming, or being declared, wholly unconditional).

According to Latham & Watkins’ 11th edition of its annual European Private M&A Market Study (the L&W Market Study), 53% of deals included a locked-box mechanism, 30% of deals included a completion accounts mechanism, and 17% of deals did not provide for price adjustment – broadly consistent with the 2023 findings.

The proportion of deals that included an earn-out increased in 2024 (and more significantly among private equity sellers) given the uncertain economic environment. The L&W Market Study noted that earn-outs featured in 23% of deals analysed, up from 14% in 2019. Earn-outs featured most prominently in healthcare and life sciences deals in 2024. However, with a growing range of innovative earn-out metrics – and market dynamics in favour of cash-rich buyers – earn-outs are expected to continue to facilitate M&A deals across sectors in the year ahead.

Escrows remain uncommon. Only 16% of deals in the L&W Market Study featured an escrow, a slight increase from last year’s study, but a notable decrease from earlier editions.

Warranty and indemnity insurance uptake has plateaued, featuring in 48% of transactions analysed in 2024 and 2023, in contrast to the steady increases seen in previous editions.

In private M&A, the conditions to closing included in a purchase agreement will vary based on the circumstances of each transaction. Historically, conditionality beyond regulatory and antitrust clearances have been uncommon, but the increasing role of regulation in dealmaking is having an impact in this regard.

The prevalence of FDI approval conditions continues to increase, corresponding with the increased number of jurisdictions with FDI regimes and the high-value, high-profile, and strategically significant nature of deals included in the L&W Market Study – 38% of 2024 deals analysed included FDI approvals as a condition (compared with 34% in 2022).

In the UK, it is not common practice to provide for a foreign governing law and/or jurisdiction in private M&A share purchase agreements. Such agreements relating to UK companies and assets are typically governed by English and Welsh law and are subject to the jurisdiction of the English and Welsh courts. In fact, for global transactions, depending on the location of the parties and their advisers, purchase agreements are also often governed by English and Welsh law, because it is viewed as stable, impartial, and commercial, with a developed litigation infrastructure.

The exit environment in the UK throughout 2024 remained subdued. Macroeconomic headwinds of economic and geopolitical uncertainty, rising interest rates, and stock market volatility continued to create hesitancy among many acquirers. However, a growing number of companies are preparing to list in the UK, with the backdrop of the FCA’s radical overhaul of the UK’s listing regime coming into effect in 2024, which aims to make this framework ‘match fit’, as mentioned above.

There are several reasons for a positive outlook in the M&A market this year. This optimism is driven by interest rate and inflation stabilisation, the resolution of key elections, pro-business pressure on regulators, and pent-up demand for dealmaking as investors continue to hold record levels of cash and dry powder.

The technology sector, especially in software and semiconductors, will be a key area of activity, driven by the ongoing AI boom and a resulting demand for chips and technologies. Investment in data centres and institutional investment in crypto assets should also remain in focus. This anticipated boost in M&A activity is expected to lead to creative deal structures and negotiated deal terms in response to navigating the macroeconomic and geopolitical challenges that may remain.