The State of the SME Business Sales and Acquisition Market in 2025
As we move further into 2025, the UK and Ireland's SME mergers and acquisitions (M&A) landscape is experiencing a resurgence according to the latest Dealsuite M&A Monitor for H2-2024. We have summarised the highlights from the report here.
A Market on the Rise in H2 2024
After a challenging period of high interest rates and inflation, according to Dealsuite’s research, buy-side transactions grew by 8%, while sell-side transactions increased by 4% in H2-2024 compared to the first half of the year.
Sectoral Performance: Construction & Engineering Leads the Way
Different industries have experienced varied impacts, with some sectors demonstrating strong growth while others faced contraction.
- Construction & Engineering saw a notable 5% increase in transaction share, reaching 15% of total deals.
- Business Services remains the largest sector for transactions, representing 22% of total deals.
- Industrial & Manufacturing also saw a rise, accounting for 16% of transactions.
- Media & Communication and IT Services, however, experienced declines, reflecting shifting investment priorities. This said, our own experience at Hornblower points to an increase with a high level of interest in our recent sale mandates in the IT managed services sector.
Deal Size and Valuation Trends
A significant trend in H2-2024 was the increase in average deal size. Transactions above £5 million accounted for 59% of deals, up from 51% in H1-2024. Additionally, EBITDA multiples—a key valuation metric—have continued their upward trend, reaching an average of 5.35 across all sectors.
High-growth industries such as Software Development and Healthcare & Pharmaceuticals command the highest multiples (8.2x and 7.9x EBITDA, respectively), while traditional sectors like Retail Trade and Construction & Engineering maintain lower multiples (3.5x and 3.7x, respectively).
The Impact of Business Size on Valuation Multiples
The size of a business plays a crucial role in determining the EBITDA multiple it can achieve. Smaller companies tend to have lower multiples due to higher perceived risk, including reliance on key individuals, customer concentration, and operational vulnerabilities. In contrast, larger businesses with stable revenue streams, diversified customer bases, and proven track records typically attract higher multiples. According to the Dealsuite report, companies with an EBITDA of £200,000 achieved an average multiple of 3.3x, whereas businesses with an EBITDA of £10 million secured significantly higher multiples of 8.4x. This demonstrates the premium placed on scale, stability, and growth potential in the M&A market.
Cross-Border Activity and Investor Interest
International M&A remains a crucial aspect of the SME market. Cross-border transactions have highlighted the valuation advantages of different regions, with the UK&I maintaining competitive multiples compared to other European markets.
For instance, software development firms in the UK&I had an average multiple of 8.2x EBITDA, whereas in the DACH region (Germany, Austria, Switzerland), this figure was 8.7x, suggesting opportunities for outbound investment.
Challenges in Deal Completion
Despite the overall positive outlook, deal success rates still face hurdles. While 71% of sell-side assignments resulted in a closed deal, 29% failed due to common challenges, including:
- Unrealistic valuation expectations from sellers (54%)
- Difficulty securing suitable financing (15%)
- Shifts in market conditions
- Inefficient due diligence processes
These factors highlight the importance of preparation, financial structuring, and transparency in ensuring successful transactions.
Optimistic Outlook for 2025
Despite the economic and global challenges, as well as the effects of the UK chancellor’s Autumn Budget on employment and the appetite for growth, M&A advisors expressed a strong sense of optimism for the SME market. In a survey of advisors:
- 74% rated the H2-2024 M&A environment positively
- 77% have a positive outlook for H1-2025, with expectations of increased deal flow and stable valuations
Final Thoughts
For business owners considering an exit or acquisition, now is an opportune time to engage with experienced business brokers who leverage platforms like Dealsuite to identify the right opportunities. At Hornblower Business Brokers, we are committed to helping SMEs navigate this dynamic business landscape, ensuring successful outcomes in an ever-evolving market.
If you’re considering selling your business or exploring acquisition opportunities, get in touch with us today.
