Mergers and acquisitions (M&A) slowed in volume in 2025, with Q3 showing the lowest domestic UK activity since 2017. Despite this, M&A deal values have increased, which implies quality over quantity. As per usual, inward investment of overseas acquisition of UK companies comprises the majority of activity. So, with the volume of domestic changes in ownership slowing significantly, we wanted to revisit the logic behind M&A. Why do some businesses believe that it is necessary to do such deals? What benefits do these deals bring? Why is the volume decreasing but the value increasing? So, let’s discuss acquiring a business as a route to corporate growth.
Acquiring a business
There are a number of reasons for acquiring a business:
- Cost reduction by removing duplication within the combined business;
- Revenue increase by up-selling/cross-selling to another customer base;
- Market share increase faster than organic means;
- Reduced competitive market pressure and greater pricing power;
- Expanding capabilities for competitive competencies;
- Access to new technologies, advances or intellectual property;
- Vertical integration across supply chains to remove intermediary profits;
- Diversification into new, high-growth market segments;
- Defence against a competitor acquiring a perceived highly attractive business;
- Tax benefits through other low-tax jurisdictions or to gain deferred tax (loss) assets;
- Exit or retirement of an owner or a private equity exit;
- Access to regulated or high barrier to entry markets;
- Resource scarcity e.g. rare earth metals, restricted components or people;
- Investor pressure for greater returns than they believe you can make on your own;
- Deploy excess cash to reduce your likelihood of a takeover.
Whatever the motivation behind it, the general rationale is to make more money. The secondary rationale is to prevent others making money at a faster rate than you can. In such cases, an acquisition could be of any organisation that can be made into a private entity. It may also be domestic or international, which are internal or outward flows. So, let’s discuss why it is shrinking as of 2025.
Acquiring businesses less common
Ultimately, acquisitions should make financial sense in that the sum generates cash at a greater scale than the sum of the parts. So, why stop doing it? It may be due to a number of factors, including geopolitical influences adding uncertainty. Domestically, the UK remains a great place to do business according to the IoD’s own confidence survey. However, that goes against just about every other measure of business sentiment. Downward factors include tax increases, subdued markets and customer confidence. Sterling remains relatively weak against the US Dollar and much weaker versus the Euro. This makes inward capital flows more likely as foreign companies eye ‘bargain’ UK companies.
There may also be some other factors at play. For simplicity, we will categorise them as Opportunism, Vanity and Context.
M&A activity isn’t all planned out months or years in advance; it depends on Opportunism. In fact, much of it is reactive depending on which companies come up for sale or run into difficulties. A competitor may appear ‘off the table’ for years until an intermediary taps you up to have a confidential discussion. There are also plenty of firms entering administration or refinancing that present an opportunity.
Next up are ego moves, pride, career progression and other self-interest motives, which is buying for Vanity. Where others see gung-ho deals and reckless bids, many see a career-defining move and a boost in seniority. Never underestimate the adrenaline of the hunt and the dopamine of the win.
Finally, there is the current macro-economic environment and advantages in the right now or soon to be, which is Context. An upcoming regulatory change, proposed trade tariffs, tax regime change or supply chain risk may make M&A appealing right now.
Corporate growth – organic or acquisition?
In many ways, M&A activity is a shortcut to growth. After all, why build capability, scale and competitive competency when you can just buy it? Why compete and claw away to create efficiency when you can take out a key competitor and be less efficient? Here lies the rub of some M&A deals. There is a chance that you will pay too much for the company. There is also a chance that you will not see the benefits that you hope for. Integration of the acquired business is highly challenging and mired with unforeseen costs. Despite running a tight ship prior to the acquisition, making a success of the combined entity may be detrimental to your existing performance. Some acquisitions never yield the proposed benefits or prove too difficult to fully realise, leading to disposal of the acquisition sometime later.
Although it takes much longer, organic growth also has pros and cons. Rapid or explosive corporate growth can create inefficiency, a lack of control and unnecessary bureaucracy. Likewise, anaemic growth removes much of the impetus and motivation to strive for better results. However, a respectable growth rate commensurate or slightly ahead of your market can be less capital intensive and more controlled. The roughly half of businesses that have strategic business plans build capability effectively and incrementally to meet demand. Unfortunately, in such cases the M&A specialists, lawyers, accountants, financiers and other advisors don’t get their cut because no deal happened.
Why should you be acquiring a business to grow?
We would suggest that shortcuts, bragging rights, talent shortages and bolstering a career are not good reasons for an M&A deal. Deals should be rooted in business and market realities, capability that you cannot easily or reliably replicate in-house and sound financial benefits based on thorough due diligence. The Harvard Business Review estimates that 70-90% of acquisitions fail to deliver the expected benefits. So, you should think long and hard about M&A and prepare thoroughly. Deals turn into failures because of a failure to integrate (like two houses on the same street), poor due diligence (perception of its value), ignoring risks (confirmation bias?), emotional highs (overpaying), the sunk cost fallacy (we came this far), missing benefits (unrealised synergies) and cultural issues (opposed core ideology).
Where situational analysis and research has revealed gaps and opportunities in markets, M&A could be an answer. Perhaps you don’t have the capability to develop software, add Internet of Things (IoD) interconnectedness or create advanced composites. If there is a clear opportunity and your competitors are not fully leveraging it (or they are very small), perhaps you should pounce. If growth is outside of your domestic market, depending on what you do, acquiring a business overseas may be a good answer to gain local knowledge. Larger businesses with a cash pile or stroppy investors pushing for higher returns are purely financially motivated and may not be rooted in sound strategic planning. In general, you must be clear on the benefits, an appropriate price and that you cannot do it yourself.
Supporting your growth journey in multiple ways
We offer a range of solutions from market analysis (identify targets) to due diligence. We also offer strategic planning support, situational analysis and execution of transformation for faster growth. So, if you need support in identifying attractive targets for acquisition, want to identify gaps in the market and upcoming opportunities or in due diligence and integration support, we can support you. We don’t need a percentage of the deal or a shareholding in the combined entity to do the right thing for your business.
If you would like to speak with a consultant, please reach out to us via our website. Alternatively, you can message us directly via our LinkedIn profile.
Finally, why not read our thoughts on some cases where a consultant is the right choice.