Successfully navigating a business merger or acquisition

Plan your next business move with confidence. 

A merger or acquisition can open new doors for growth, streamline operations, and enhance market presence. Businesses across the UK often consider combining forces to improve economies of scale, benefit from complementary expertise, or secure new technology. Although this form of restructuring can bring advantages, it also involves risks if it is not managed correctly. This guide outlines essential factors that business owners should consider when they plan or undertake a merger or acquisition in the current UK environment. 

Below, you will find guidance on the process, from preliminary research and financial evaluations through to post-deal integration. The goal is to give you a reliable foundation for decision-making. Please note that every organisation’s requirements are different, so it is wise to consult professional advisers and the relevant legislation to ensure compliance. 

Introduction to mergers and acquisitions 

In general terms, a merger refers to an arrangement in which two companies combine to form a single, new entity. This often occurs when businesses of similar size, or with complementary strengths, join to expand their reach or create efficiencies. An acquisition, by contrast, takes place when one company buys a majority or complete stake in another. The acquired business then either continues to function as a subsidiary or is integrated more closely, depending on strategic objectives. 

The Office for National Statistics (ONS) tracks merger and acquisition activity in the UK. While figures fluctuate from year to year, overall M&A activity remains a notable part of the economic framework. For example, ONS data indicated that domestic M&A (where both parties are based in the UK) reached £8.6 billion in Quarter 4 of 2024. Although specific figures will vary in each subsequent year, it is evident that M&A deals form a significant proportion of corporate restructuring activity. The upward trend in certain sectors, such as technology and healthcare, suggests that more businesses may consider this path in the years ahead. 

Preparing your strategy 

Before you approach a deal, begin with a clear strategy. Have a realistic, data-driven rationale for what you aim to achieve. Some organisations seek scale to access bigger markets. Others acquire specialist knowledge or intellectual property in order to enhance their product or service range. By outlining your objectives from the outset, you can shape every step of the process. 

Key considerations when defining your objectives: 

• Operational alignment: Determine how the combined entity will manage production or service delivery. It helps to compare supply chains, distribution networks, and management structures. 
  

• Financial gains: Aim to establish whether the transaction could bring cost savings or boost revenue streams. Sometimes this happens through shared resources, cross-selling opportunities, or improved procurement terms. 
  

• Market analysis: Investigate how well the target company complements your reach. Investigate the size of the potential audience, any overlapping market segments, and any new regions you might be able to access. 
  

• Cultural compatibility: Examine whether work cultures, values, and approaches are comparable. This is sometimes overlooked, but it can make a difference to staff retention and day-to-day operations. 
  

By knowing your end goals early, you establish a roadmap for the rest of the process. During negotiations, these objectives also help you evaluate whether a proposed deal will truly benefit your company. 

Evaluating the financial position 

A detailed financial assessment is fundamental. This work usually involves both in-house teams (such as finance or accounts) and external professionals, including accountants and solicitors, who can carry out due diligence checks. 

Vital checks include: 

• Balance sheets: Examine the assets, liabilities, and equity structure of the target company. Look for any outstanding debts or pending litigation that could affect future profitability. 
  

• Cashflow statements: Review past and projected cashflow to see how the business funds day-to-day activities. If there are shortfalls or negative trends, be realistic about the time, investment, or restructuring required to correct them. 
  

• Profit and loss statements: Look at revenue sources, direct costs, and overheads for a minimum of three to five years (or longer, if available). Consistent growth is often more attractive than sporadic spikes in revenue. 
  

• Customer and supplier contracts: Determine whether these agreements will remain in force after a merger or acquisition. Contracts that are set to expire or have clauses triggered by ownership changes can lead to unexpected issues. 
  

• Contingent liabilities: Identify any possible liabilities that might appear in the future, such as pending lawsuits, tax investigations, or product warranty claims. 
  

Consider hiring independent auditors or accountants to offer an unbiased opinion, especially for larger deals. They will typically supply an in-depth review of the target’s financial health, so you can gauge how these figures align with your objectives. A report of this nature will often highlight elements that could pose potential risks or confirm that the target is stable and aligned with your strategic plan. 

Tax considerations for the current UK tax year 

Tax liabilities can have a meaningful impact on the success of a merger or acquisition. As of the current tax year (starting 6 April 2025 through 5 April 2026), corporation tax rates can vary depending on a business’s level of taxable profits. After changes introduced in recent budgets, the main rate of corporation tax is set at 25% for businesses with profits above £250,000. Companies with profits up to £50,000 may qualify for a 19% small profits rate, while those in between typically pay a tapered rate. 

When assessing a target company’s position, confirm that any existing corporation tax, VAT, and payroll taxes have been submitted correctly and on time. A thorough check of VAT records, in particular, is recommended if the acquired or merged company operates in industries where goods or services have different VAT treatments. 

Additional points: 

• Stamp Duty: If you acquire shares in a UK company, you may pay Stamp Duty at 0.5% on the total purchase price of the shares. For asset purchases, Stamp Duty Land Tax (SDLT) may apply if property is involved. 
  

• Capital allowances: Large capital investments, such as machinery or commercial vehicles, might offer potential tax reliefs. 
  

• Research and Development (R&D) relief: If the newly combined entity invests in R&D, you might be eligible for additional tax relief. However, specific eligibility requirements apply, so check the current HMRC guidelines. 
  

Tax rules can be complex, so it is worthwhile to confirm your situation with professional advisers. Failing to manage tax obligations correctly can result in penalties or unexpected bills later on. 

Legal frameworks 

A successful merger or acquisition in the UK needs to comply with relevant laws and regulations, including: 

• Companies Act 2006: Governs issues such as shareholder approval, disclosure requirements, and any restructuring processes. 
  

• Competition and Markets Authority (CMA) rules: If the combined entity attains a significant share of the market, the CMA might investigate the deal to ensure it does not hamper fair competition.
  

• Employment law: Any reorganisation of staff must follow fair procedures, including Transfer of Undertakings (Protection of Employment) regulations (TUPE) if employees are transferred from one entity to another. 
  

• Data protection laws: Under the Data Protection Act 2018 and the UK General Data Protection Regulation (UK GDPR), businesses must handle any transfer of data responsibly and lawfully. 
   

Professional legal advice is helpful for making sure the deal structure and post-completion changes comply with these statutory frameworks. Depending on the scale of the deal, certain agreements may need to be filed with Companies House. In some cases, pre-completion approvals from relevant authorities (such as regulatory bodies) may be required. 

Cultural and operational alignment 

Although the financial and legal aspects are prominent, the human factor also needs attention. Cultural and operational differences can contribute to friction if management teams do not address them from the start. Each business often has its own work routines, reporting structures, and values, so you should establish from the outset how these elements will combine or coexist. 

Practical approaches include: 

• Employee engagement sessions: Encourage dialogue among teams that will work together. This might help identify areas of overlap or conflict. 
  

• Management alignment: Align management styles to reduce the possibility of misunderstandings. Consider leadership training or strategy workshops to unify teams. 
  

• Branding decisions: If you plan to bring the acquired company under your brand, develop a timeline for rebranding. Alternatively, if you intend for it to remain a separate brand, clarify guidelines on messaging and brand usage. 
   

Open communication and transparent policies help to build trust. If employees and stakeholders understand the reason behind major changes, they may adapt more quickly and contribute to a more productive environment. 

Integration planning 

After a formal merger or acquisition, the integration phase is where the intended benefits should materialise. Poorly planned integration can undermine the deal's value, so it is worth investing in a detailed plan that covers every aspect of the new organisation. 

Common areas to cover: 

• Systems and technology: Decide which IT systems will be maintained or replaced. Integrating accounting software, customer relationship management (CRM) tools, and other platforms can prevent data silos. 
  

• Finance and reporting: Standardise processes for budgeting, payroll, and financial reporting. This ensures all teams follow consistent procedures. 
  

• Product or service range: If each company has a different product line, explore opportunities to cross-sell or bundle services. Decide whether any products or services will be discontinued to avoid overlap. 
  

• Supply chains: Coordinate procurement and logistics to benefit from economies of scale or to negotiate better supplier contracts. Keep track of any supply-chain dependencies to avoid disruptions. 
  

• Key performance indicators (KPIs): Define measurable goals for the combined entity. Examples include profit margins, operational costs, customer satisfaction levels, or employee retention rates. 
   

Be realistic about timescales. Depending on the complexity of the deal, integration might take many months or even longer. To stay on track, some businesses appoint an integration manager or set up an integration committee with representation from different departments. 

Staff retention and communication 

Maintaining staff morale is one of the more challenging tasks during a merger or acquisition. Sudden changes and uncertainty about the future can cause stress or prompt valued employees to look elsewhere. Clear communication is often the best way to reassure employees and keep them aligned with the business. 

Steps to consider: 

• Regular updates: Hold meetings or send official bulletins to keep staff informed of changes in structure, leadership, or operational processes. 
  

• Support systems: Provide resources like training or counselling if needed. When staff understand new workflows or roles, they adapt more quickly. 
  

• Transparent messaging: Be direct about any redundancies, relocations, or changes in benefits. Staff are more likely to trust management if they feel that they are getting full and honest information. 
  

• Recognition of achievements: If teams meet set goals during the transition, emphasise their accomplishments. This contributes to a positive work culture. 
   

High staff turnover can damage the new entity’s ability to deliver on its objectives and might cause delays, so it is sensible to make retention a priority. 

Risk management 

Even the most thoroughly planned deal can involve unexpected hurdles. Managing these effectively can make the difference between a successful transaction and a problematic one. A comprehensive risk assessment may cover: 

• Financial risks: Changes in interest rates, fluctuations in currency values (for international deals), or unforeseen tax liabilities. 
  

• Operational risks: Disruptions in supply chains, IT integration failures, or data security breaches. 
  

• Legal risks: Non-compliance with competition law, failure to secure approvals from regulatory authorities, or breach of contract claims. 
  

• Reputational risks: Public or media criticism if the deal results in widespread job losses, or if key stakeholders do not support the move. 
   

Each risk area should have an assigned ‘owner’ who is responsible for monitoring and taking corrective steps if necessary. In some cases, businesses purchase specific forms of insurance (such as warranty and indemnity cover) to limit exposure to certain liabilities. 

Post-deal considerations and ongoing compliance 

Once the deal closes, ongoing monitoring helps ensure that projected benefits are realised. This involves checking performance metrics, meeting legal obligations, and continuing to engage with employees and customers to foster a cohesive corporate identity. 

Ongoing activities might include: 

• Periodic audits: Schedule regular financial and operational reviews. This makes it easier to detect any discrepancies early. 
  

• KPI tracking: Measure key indicators against pre-deal forecasts. Adjust strategies if results deviate from the expected performance. 
  

• Cultural alignment checks: Assess whether teams remain cooperative. Look out for signs of silos or divisions that may emerge over time. 
  

• Reinvestment strategies: Determine if any resources saved or gained from the transaction can be reinvested in product development, market expansion, or staff training. 
  

• Stakeholder feedback: Gather input from employees, customers, and suppliers. Their perspectives can indicate whether the new structure is functioning well or needs adjustments. 

Best practices for a successful process 

Below is a concise list of action points that can guide you toward a successful merger or acquisition: 

• Perform thorough due diligence: Confirm that all key financial, legal, and operational aspects are verified. 
  

• Seek expert advice: Consult accountants, solicitors, and tax specialists who are experienced in M&A deals. 
  

• Have a clear strategy: State your objectives early and use them to evaluate potential targets. 
  

• Plan for integration: Develop a structured plan to unite systems, processes, and people. 
  

• Communicate openly: Maintain regular dialogues with all stakeholders, especially employees. 
  

• Comply with regulations: Adhere to relevant laws, including employment rules and data protection requirements. 
  

• Monitor progress post-deal: Conduct periodic reviews to confirm that the intended benefits are realised. 
   

Key takeaways 

Mergers and acquisitions can introduce new opportunities to expand market share, streamline operations, or enhance innovation. They can also involve challenges that range from strict legal requirements to employee concerns. Careful preparation and professional advice will help you handle the process in a way that preserves business stability and positions you for future growth. 

As you set your strategy, remember the importance of thorough due diligence, efficient tax planning, and proactive communication. A well-managed transition sets the stage for a stronger and more competitive entity. Whether you aim to improve your product range, extend your customer reach, or strengthen your infrastructure, a merger or acquisition can be an effective path forward when planned and executed with diligence. 

Before finalising any transaction, confirm the relevant guidelines issued by HMRC, the CMA, and other regulatory bodies. This ensures that your decisions align with the current UK tax year requirements and any updates in business or employment legislation. With well-grounded planning and ongoing monitoring, you have a strong chance of achieving a successful outcome that benefits stakeholders on all sides. 

Every deal is different – speak to us to make sure your strategy, tax planning, and structure are fit for purpose.