Mark Kleinman: Will Reeves step back from a Hallowe’en nightmare?

Mark Kleinman is Sky News’ City Editor and is the man who gets the City talking in his weekly City AM column. This week he tackles Reeves’ budget plans, M&A and the investment summit

Will Reeves step back from a Hallowe’en nightmare?

The warnings are coming thick and fast. Investment banks, investors and the owner of London’s junior stock market have all been clear to Rachel Reeves: scrap business relief on AIM stocks and risk its demise. Some have dubbed it a Hallowe’en nightmare in prospect for the exchange, with the chancellor set to deliver her first Budget on October 30.

Reeves would be making a huge mistake if she targets the AIM component of her anticipated inheritance tax overhaul. The Institute for Fiscal Studies estimates that scrapping the exemption would raise more than £1bn, rising to £1.6bn annually by 2029-30.

This is only true, though, if AIM survives in its current form – and there are serious doubts about whether it would. Investment banks have already begun warning clients about the potential impact of business relief abolition, encouraging them to consider moving to the main market or to use surplus capital to buy back shares ahead of the Budget.

“Our recent engagement with LSEG and government gives us little cause for optimism that this will not at minimum be consulted on following Rachel Reeves’s first budget on 30 October 2024,” reads a note from one broker, which has been passed to me by a client.

“The clear inconsistency between having a government focused on growth and a tax measure which will disincentivise at least some retail investment in the UK’s leading growth stock market is clear, particularly at a time when UK equity markets have been suffering from net outflows for a sustained period of time.”

Data showing that AIM has underperformed the all-share index markedly since Rishi Sunak called the general election is no accident. At a time when Labour is desperate to exhibit that it will be a pro-growth party of government, annihilating the stock exchange focused on growth companies would be a disastrous demonstration of its credentials.

Tough choices have, of course, to be made by chancellors in their fiscal statements. Pressing ahead with the removal of business relief on AIM share trading would, though, be an act of economic vandalism that would rightly raise doubts about the viability of Labour’s entire growth agenda.

There’s no accounting for taste in professional services M&A

Grant Thornton, Interpath Advisory, Evelyn: since when did professional services get so exciting for private equity investors?

A frenzy of dealmaking in a sector which has been historically dominated by partnerships and starved of corporate activity is gathering pace.

Right now, Grant Thornton is exploring the sale of a significant minority stake in its UK operations that could value them at up to £2bn. Suitors include private equity firms such as EQT Partners and the quasi-strategics such as New Mountain Capital, which already owns a sizeable interest in the accountancy firm’s US partnership.

One bidder which decided against pursuing a deal was CVC Capital Partners, owner of the public relations, restructuring and wider corporate advisory firm Teneo. That, too, is likely to be put up for sale in the next couple of years given the longevity of CVC’s ownership.

Then there’s Evelyn Partners, the wealth manager, which is working with advisers on a sale of what was Smith & Williamson, the accountant.

The missing piece of this M&A jigsaw is Interpath Advisory, the former restructuring arm of KPMG UK which recently refreshed its leadership.

Backed by HIG Europe, I now hear that Interpath is taking initial steps to build a presence in the US. In the coming days, it will announce the appointment of David Sawyer, recently of Teneo and before that co-head of restructuring and turnaround at Ankura Partners, as a special adviser.

Cracking the US insolvency market will be a crucial component of the growth narrative for HIG and Interpath when they come to sell the business, so a lot rides on Sawyer’s 30-plus years of experience.

If it works out, expect Interpath to be on the conveyor belt of professional services deals by 2026 as well.

Investment summit will highlight budget for overseas deal-making 

The moment is almost upon them. Next Monday, at a prominent central London location, the government’s International Investment Summit will take place, and in so doing (one Tory MP sneers) represent the first broken Labour manifesto commitment by taking place 102 (and not within 100) days after the general election.

Glib politicking aside, the cast list is an impressive one: sovereign wealth funds (including from Bahrain and Saudi Arabia), overseas corporates (among them Alphabet, Amazon and Tata), pension funds (such as the Canada Pension Plan Investment Board) and private equity investors (including from Apollo and Blackstone) will rub shoulders with FTSE-100 bosses from Aviva, BAE Systems, BT Group, GlaxoSmithKline and Lloyds Banking Group.

The six summit sponsors paying £175,000 apiece for the privilege will be under pressure to deliver investment pledges totalling billions of pounds. Coming just two weeks before a Budget which could have profound ramifications for Britain’s economic landscape and the country’s tax system, corporate chiefs will be brave if they make irrevocable commitments on October 14.

The scheduling of the two events was, in the words of one financier, “arse about face”. There’s not much that can be done about that now; maybe Labour’s calculation was that holding the investment summit after a brutal Budget for the super-rich would have been even harder to pull off.