Policy; Private Capital & Digital Transformation: What to look for in the Investors & Entrepreneurs’ space in 2025

As Christmas comes and goes, we’re all wondering where the second half of 2024 went, already thinking ahead to booking our 2025 summer holidays… it seems as good a time as any to reflect on the last year, and gaze into the crystal ball to consider what the next 12 months might bring for the UK’s entrepreneurs, and those who invest in UK businesses. 

A whistle-stop reminder of 2024

2024 was certainly a year of change in the UK, not least with an incoming Labour government in July and the Budget in October. International events also had a large impact, from the re-election of Donald Trump in the US, to continuing wars in Europe and the Middle East. 

Against this backdrop, businesses have had to remain agile amongst a fast-changing landscape. We have witnessed first-hand how, despite challenges, the UK’s entrepreneurial scene remained buoyant in 2024. Some highlights have included facilitating successful founder-led exits in sectors as diverse as music licencing and data, to chilled foods and packaging, and supporting acquisitions of fast-growing businesses in the AI and IT solutions spaces. On the investment side, from fast casual dining to cyber security, our clients have been similarly busy in looking to grow and develop in the UK. 

So, what about that 2025 crystal ball…

Policy-driven opportunity 

Despite the ‘Halloween Budget’ of Autumn 2024 seemingly placing the government’s growth strategy at odds with fiscal reality, there remains opportunity for the entrepreneur looking at business succession options. Corporation tax rates have remained unchanged, giving some stability, and increases to the rate of tax on carried interest are being phased in over time. However, whilst increases in the rates of capital gains tax (CGT) will hit business owners looking to exit, business asset disposal relief (BADR) on sales remains, albeit less generous than current levels. BADR (and Investment Relief) have a rate hike from 10% to 14% very soon in April 2025 and otherwise go up to 18% in April 2026.

Against these tax increases, alternate succession opportunities, such as employee ownership trusts (EOTs). Anecdotally, we have seen an increase in transactions involving EOTs, highlighting the attractiveness of combining both business continuity – the existing employee pool effectively becoming the company’s owners – with, subject to certain criteria, reducing a seller’s CGT liability to nil.

For entrepreneurs looking to the public markets for investment, simplification of the listing rules in 2024 and proposed changes to the prospectus regulations are welcome developments. Similarly, the proposed establishment of PISCES, a secondary market platform for unlisted companies (permitting trading with institutional investors, high net worth individuals and employees, amongst others) will hopefully provide a further option for growing businesses looking to provide liquidity for a growing shareholder base.

Availability of private capital 

Against the backdrop of rising inflation, high interest rates and difficult lending conditions, combined with lower valuations, there have been challenging times recently for businesses in need of capital, or founders looking to exit. However, sources of private capital – not just private equity, but high net worth investors and family offices – are now primed to put their capital to good use. 

We are starting to see the effects of this, and expect this trend to continue in 2025. On the private equity side, we expect not just the volume of large cap transactions to increase, but transactions in the mid-market too. Technology-driven businesses in particular, developing new and scalable products, are likely to be welcome targets to put this capital to use. We also expect the volume of private equity exits to increase, spurred on by the incoming changes to tax on carried interest. 

Anecdotally, direct investments by family offices and high net worth individuals into fast growing businesses are also becoming more frequent, enabling greater returns and control for the investor, with an investment in ESG-conscious companies in particular offering the opportunity for diversification. Recent and upcoming changes around transparency to the UK corporate registrar’s operations, and new requirements regarding the verification of persons who control or act as directors for UK companies, may also increase filing requirements on investments and transactions, and the amount and type of due diligence investigations that such investors conduct. Businesses will need to ensure their corporate housekeeping is in order.

Digital transformation

Another recent theme that we expect will continue to impact the activities of both UK and international investors, and the entrepreneurs building businesses looking for investment, is the importance to businesses of digital transformation. 

The need to keep up with the pace of change – whether through purchasing additional ‘bolt-on’ technology solutions, or investing to develop existing products – is likely to continue a drive in acquisitions and investment in the technology, healthcare and financial services sectors (and beyond). The continued integration of AI products and automation solutions in particular is likely to present further opportunities for investment, as growth-focussed companies strive to increase efficiencies across their business.  

For businesses intending to take on investment, or entrepreneurs looking to achieve an exit, expect to be asked more and more about how digital solutions – in particular AI – are being used in the business. Current expectations around, for example, increasingly detailed due diligence questions in a financing or sale transaction are likely to become more common in 2025. 

What does this all mean…?

For investors, we expect that whilst investment activity may increase in 2025, some of this investment will be more opportunistic, with more condensed transaction timetables, driven partly by upcoming changes in the UK tax regime. There is also likely to be an impact for overseas investors’ plans as a result of the changes to tax on non-UK domiciled individuals, ahead of the start of the next tax year. 

For entrepreneurs, we expect that the next year will provide some unique opportunities to grow their businesses, and work towards further investment or an exit. For those looking at the short-term opportunities, upcoming changes to the UK tax regime could offer opportunity for accelerated deal timetables, as investors and acquirors look to complete deals ahead of CGT rule changes. In the more medium term, we expect that investing in digital capabilities, including AI solutions, will be essential for businesses looking to ‘future-proof’ their operations, in the hope of future investment or exit opportunities.

Who knows, perhaps next year our crystal ball will be AI assisted…