Why UK sectors under cost strain are becoming M&A Hotspots — and how SME Owners can end up on the Winning Side

David Richardson ran three children’s nurseries in the West Midlands. For years they delivered healthy margins and predictable cash flow.

Then the pressures began to stack up.

Another National Living Wage increase in April 2025. Higher employer National Insurance contributions. Energy costs that never quite returned to pre‑crisis levels. Recruitment challenges that meant paying above statutory minimums to secure and retain good staff.

By mid‑2025, his EBITDA margin had slipped from around 18% to 11%. The business still worked — but the headroom for error had gone. David started to worry whether his current scale was viable in the medium term.

Then he had a call from a private equity‑backed nursery group.

Far from being deterred by the cost pressures, they were attracted by them. Within six weeks, David had agreed terms to sell all three locations at 7.2x EBITDA, well above typical sector norms for small groups.

The buyer’s logic was simple:

• The very cost pressures squeezing independent operators were creating a consolidation opportunity.
• Acquire ten operators like David.
• Centralise procurement, finance and HR.
• Standardise systems and reporting.
• Spread fixed overheads across a much larger revenue base.

At that scale, the unit economics look very different. What felt like an existential threat at independent level became a source of value at platform level.

David’s experience is not unique to nurseries. Across the UK SME landscape in 2025, a counter‑intuitive pattern is emerging:

The sectors facing the most intense operational pressures are often seeing the strongest buyer interest and most active deal flow. For owners in operationally intensive sectors, that raises a defining strategic question:

Are rising costs simply eroding your margins — or are they signalling a once‑in‑a‑generation exit opportunity?

The answer depends on three things: scale, positioning, and timing.

The Consolidation Pressure Thesis

When fragmented sectors face systemic cost increases — wage inflation, growing regulatory burden, energy prices, supply chain disruption — the impact is uneven.

Smaller operators, with limited management depth and little bargaining power, often feel the pain most acutely. They absorb cost increases directly into their margins, with limited ability to:

• Renegotiate supplier terms.
• Invest in productivity‑enhancing technology.
• Spread fixed costs over a wider revenue base.

Larger operators, by contrast, are better placed to absorb or offset the same pressures. They tend to have:

• Centralised functions (finance, HR, compliance, procurement).
• More sophisticated systems and data.
• Greater credibility with lenders and investors.
• Procurement leverage due to higher volumes.

This divergence creates a powerful consolidation dynamic. As smaller firms struggle, financially and emotionally, larger platforms see acquisition opportunities.

Private equity firms, family offices and trade buyers recognise that fragmented sectors under operational pressure can be ideal hunting grounds for building scale platforms:

• Motivated, realistic sellers.
• Sensible valuations (before the sector fully consolidates).
• Clear operational synergies with each acquisition.

The result is often an M&A “feeding frenzy” in sectors which, from the outside, look unattractive: low margins, high staff intensity, heavy regulation. For the right buyer with a scale thesis, those are features, not bugs.

Where Consolidation is Happening in the UK right now

Children’s nurseries: Pressure‑driven consolidation in practice

The UK children’s nursery sector has seen a marked increase in M&A activity through 2024–2025. The drivers are textbook consolidation‑pressure dynamics:

• Wage inflation: Successive National Living Wage increases and shortages of qualified staff.
• Regulation: Ongoing changes to early years regulation and safeguarding requirements, with associated compliance costs.
• Property and energy: High fixed costs for premises and utilities.

For single‑site or small group nurseries, these combined pressures have squeezed margins. For private equity‑backed groups building regional or national platforms, they have created opportunity.

The strategic rationale is clear:

• A single 50‑place nursery has limited procurement leverage and needs a near‑full management structure.
• A platform with, say, 15 nurseries and 700–800 places can centralise:
• Procurement of food, consumables and utilities
• HR, payroll and compliance
• Finance and MI reporting

It can also justify investment in better systems and technology that would be uneconomic at single‑site level.

The nurseries that command premium multiples are not always those with the highest standalone profitability. They are the ones that look and feel like platforms: multi‑site, standardised operations, credible second‑tier management, and the ability to absorb further acquisitions.

By contrast, a single well‑run site is usually treated as a bolt‑on — still attractive, but typically valued on a lower multiple.

Managed Services Providers (MSPs): Consolidation through Capability

The UK managed IT and telecoms services market shows a different but related pattern: consolidation driven by the need for both scale and capability breadth.

Recent UK examples illustrate the trend:

• Some MSPs have executed multiple acquisitions in a 12‑ to 18‑month period to build national reach and a broader service offering.
• In mid‑2025, Transputec acquired Armadillo Managed Services, a cybersecurity‑focused MSP with around £4m turnover and a strong client list. This was not a distressed sale; it was a strategic move to deepen capability in cyber whilst leveraging shared infrastructure.

The sector faces its own operational pressures:

• Scarcity and rising costs of skilled engineers.
• Client expectations of 24/7 support and high responsiveness.
• Continuous investment needed in tools, platforms and security offerings.

These factors favour larger operators with the scale to:

• Maintain deep technical benches.
• Run sophisticated ticketing and monitoring systems.
• Spread the cost of out‑of‑hours support and specialist skills across a broad customer base.

For smaller MSPs with genuine technical specialisms (for example, cyber security, cloud optimisation, data analytics), the direction of travel is becoming clear: either become a platform in your own right, or position as a premium capability bolt‑on to a larger group.

Garden Centres: Traditional Retail, Modern Consolidation

The UK garden centre market has also seen increased consolidation.

Rising labour costs, seasonal cash flow swings, high property overhead and competition from national retail chains have all made life harder for independents. Many are owner‑managed, property‑heavy businesses with ageing leadership teams and limited succession plans.

Trade acquirers — established garden centre groups and diversified retail groups — see an opportunity to:

• Expand geographically.
• Improve procurement terms.
• Implement consistent merchandising and customer experience.
• Rationalise back‑office functions.

This illustrates an important point: consolidation opportunities are not confined to technology or “modern” sectors. Any operationally intensive, fragmented market with rising cost pressure can be a candidate.

Industrial and Construction Services: The Rise of the Corporate Compounder

In industrial and construction‑related services, a different buyer profile has been emerging: the corporate compounder.

These are acquirers — sometimes listed, sometimes private — that build portfolios of industrial businesses with a long‑term, compounding mindset.

Typically they:

• Maintain decentralised day‑to‑day control at subsidiary level.
• Provide capital, procurement leverage and strategic support from the centre.
• Look for strong, stable management teams who remain in place post‑completion.

Construction, engineering and industrial manufacturing in the UK have all seen an uptick in M&A activity. These sectors face:

• Rising material and labour costs.
• Skilled trade shortages.
• Tightening health and safety and environmental requirements.
• Project‑based revenues with cash flow volatility.

For smaller firms, these are often existential challenges. For compounders, each acquisition adds:

• Revenue diversification.
• Geographic spread.
• Specialist capability.

The targets that attract best attention are not necessarily the largest, but those with:

• Strong operational discipline.
• Reliable, long‑standing customer relationships.
• Clear technical or niche capability.
• A management team capable of continuing under a group umbrella.

Platform or Bolt‑on? The Positioning Decision that Drives Your Multiple

In consolidation‑driven sectors, your valuation multiple is heavily influenced by how buyers classify your business:

• Platform: A business that could be the foundation for future acquisitions.
• Bolt‑on: A business that will be integrated into an existing platform.

This is not arbitrary. Buyers use specific criteria.

Typical platform characteristics:

• Management depth beyond the founder: functional heads for operations, finance, sales and HR.
• Documented, repeatable operational systems that can be rolled out across multiple sites or units.
• Financial infrastructure that supports scale: timely management accounts, KPI dashboards, cash flow forecasts.
• Geographic spread or service breadth that provides a clear base for expansion.
• Evidence (or a credible plan) for integrating acquisitions or roll‑outs.

Typical bolt‑on characteristics:

• Strong trading performance but high founder dependence.
• Key customer or supplier relationships concentrated in the owner.
• Single‑site or narrow niche focus without a clear expansion framework.
• Finance and reporting adequate for current scale, but not designed for complexity.

The valuation impact can be material. In many operationally intensive UK sectors:

• Platform businesses may transact at 7–9x EBITDA.
• Bolt‑ons might achieve 4–6x EBITDA.

The difference is often less about today’s profit and more about infrastructure and scalability.

The positive news is that, with 18–24 months of focused work, many “bolt‑on” style businesses can be repositioned as credible platforms.

Returning to David’s nurseries:

• When he first took advice in early 2024, each nursery operated largely independently. All finance, procurement, HR and strategy sat with him. The likely buyer view: attractive bolt‑on, perhaps 5x EBITDA.
• Over the following 18 months he:
• Hired a group operations manager
• Standardised systems and processes across all sites
• Centralised finance and procurement
• Implemented consistent reporting and KPIs
• Developed a playbook for integrating additional nurseries

By mid‑2025 he was no longer selling three nurseries. He was selling a nursery platform. The 7.2x multiple reflected that shift.

The Scale Economics Buyers are Modelling

To understand why buyers are so active in pressured sectors, it helps to look at the scale economics they model.

Consider a simplified MSP example.

Independent MSP – £2m revenue

• Roles required: owner‑manager, service delivery lead, sales lead, finance administrator.
• Fixed overheads (including management salaries, premises and systems): c. £350k.
• Limited purchasing power with vendors.
• Needs sufficient staff to cover 24/7 on‑call, even for a modest client base.

Platform MSP – £20m revenue, built through ten acquisitions

• Centralised finance, HR and marketing team, costing say £800k per year — equivalent to 4% of revenue (versus 17.5% at £2m).
• Group‑wide vendor agreements, improving pricing by 15–20%.
• Centralised NOC (Network Operations Centre) and helpdesk, allowing higher utilisation of technical staff.
• Ability to build specialist teams (for example, cyber, cloud, data) and deploy them across the portfolio.

The shift is not a small efficiency gain. It fundamentally changes the unit economics.

This is what buyers see when they look at a fragmented, pressured sector:

• Today’s EBITDA at independent level.
• Tomorrow’s EBITDA once the same revenue sits in a consolidated, systematised platform.

For sellers, the implication is important:

If you can clearly demonstrate the operational leverage in your model — how margins improve as scale increases — you are not just selling current performance. You are selling potential.

That is what often supports premium pricing.

A Pragmatic Action Plan: Positioning for Premium Valuations

If you operate in a UK sector facing cost pressures and visible consolidation, you likely have a 12–24‑month window to choose your path. The right strategy depends on whether you aim to become a platform or a high‑value bolt‑on.

1. Building platform positioning (18–24 months)

Months 1–6: Management infrastructure

• Start removing yourself from day‑to‑day operational dependence.
• Put in place, or formalise, functional leaders for operations, finance, sales and HR.
• Document key processes and decision frameworks.
• Introduce regular management meetings with clear metrics and actions.

Practical test: Could the business run acceptably for three months if you stepped back? If not, a buyer will see key‑person risk rather than platform capability.

Also:

• Implement basic management information disciplines:
• Monthly management accounts.
• KPI dashboards (margin by site, staff utilisation, customer churn, etc.).
• Rolling 12‑month cash and P&L forecasts.

This is the language institutional buyers expect.

Months 6–12: Operational standardisation

If you have multiple sites or business units, focus aggressively on standardisation:

• Harmonise pricing structures, service levels and key processes.
• Consolidate systems where possible (EPOS, CRM, practice management, HRIS).
• Centralise finance, HR, procurement and, where appropriate, marketing.

This serves two purposes:

1. It usually improves your own profitability.
2. It demonstrates to buyers that the business is ready to absorb more volume or additional sites.

Months 12–18: Demonstrate scalability

Where feasible, create evidence that your model is replicable:

• Open an additional site or location.
• Complete a small, carefully chosen acquisition and integrate it.
• Launch a new service line and document the roll‑out process.

Buyers place real weight on demonstrated, not just theoretical, scalability.

In parallel, develop a clear, practical expansion plan:

• Target geographies or sub‑sectors.
• Potential acquisition profiles.
• High‑level financial impact of 2x and 5x current scale.

This plan often becomes a central part of the information memorandum. You are not only selling a business; you are selling the growth blueprint.

Months 18–24: Market preparation

When the fundamentals are in place:

• Engage an M&A adviser with sector and UK mid‑market experience.
• Map potential buyers: private equity platforms, trade consolidators, corporate compounders.
• Prepare a management presentation that:
• Shows current unit economics
• Models the economics at larger scale
• Outlines specific synergies a buyer could realise

You are positioning yourself as a solution to the buyer’s platform‑building thesis.

2. Premium bolt‑on positioning (12–18 months)

Not every owner wants, or is resourced, to build a platform. Positioning as a premium bolt‑on is a valid and often attractive route.

Focus on three priorities:

a) Defensibility

Clarify and strengthen what makes your business hard to replicate:

• Niche expertise or technical capability.
• Long‑standing, contractual or recurring customer relationships.
• Specific accreditations, approvals or regulatory permissions.
• Strategic locations (for example, regional gaps in a consolidator’s map).

b) Operational excellence

Platform buyers want bolt‑ons that will integrate smoothly. You can increase perceived value by:

• Ensuring clean, well‑organised financial records for at least three years.
• Documenting key processes and roles.
• Reducing customer and supplier concentration where possible.
• Improving staff retention and succession below founder level.

c) Strategic fit

Research who is actively buying in your segment:

• Where are their gaps — geography, sector, capability?
• How could your business fill a clear hole in their portfolio?

If a national MSP lacks a presence in the North of England and you are a strong regional operator there, that is strategic fit. The same applies to nurseries in underserved local authority areas, or technical contractors with scarce specialist skills.

A business that solves a visible problem for a consolidator can command a stronger multiple than a generic asset of similar size.

The Consolidation Window — and why it will not stay open

Consolidation in pressured sectors tends to follow a predictable cycle:

1. Early phase: Highly fragmented market, many independents, first movers start building platforms. Deal flow is high; valuations are often attractive for well‑positioned sellers.
2. Middle phase: Several platforms exist and compete for acquisitions. Multiples for high‑quality assets can be strong, but the number of independent targets begins to shrink.
3. Late phase: A small number of dominant groups control much of the market. Acquisition opportunities become rarer and more expensive. Many remaining independents are sub‑scale or distressed.

For SME owners, the best time to sell is usually in the early‑to‑middle phase, when:

• Buyers are actively building platforms.
• There is still a broad choice of potential acquirers.
• Premiums are paid for assets that accelerate a buyer’s strategy.

Several UK sectors appear to be in this window now, including:

• Children’s nurseries
• Managed IT and telecoms services
• Garden centres and related retail
• Construction services and selected industrial niches
• Healthcare and Wellness

The underlying sector pressures — wage inflation, regulation, competition for talent, cost of capital — are unlikely to reverse in the near term. They are structural rather than temporary.

For prepared owners, those same pressures can translate into attractive exits. For unprepared owners, they can gradually erode value and lead to forced, lower‑value sales.

Timing and preparation turn the same headwinds into either an opportunity or a threat.

What this means for Your Business

If you own an operationally intensive UK business in a fragmented, cost‑pressured sector, you may be sitting on exactly the type of asset that consolidators and investors are looking for.

Consolidation is not a theoretical question. It is already happening in many markets. The practical questions for you are:

• Where does my sector sit in the consolidation cycle?
• Am I currently viewed as a platform, a strong bolt‑on, or something in between?
• What could I achieve in 12–24 months with a pragmatic, structured plan?

With focused preparation, you can:

• Reduce risk and protect value in the short term.
• Create options: grow as a platform, sell as a premium bolt‑on, or take some capital off the table whilst continuing to run the business.
• Approach potential buyers from a position of strength rather than necessity.

The counter‑intuitive truth is that the same pressures making your daily operations more challenging may also be making your business more valuable to the right buyer.

The window is open. The key is to decide, early and consciously, how you want to approach it.

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About Exit Strategy & Solutions

Exit Strategy & Solutions is a specialist advisory firm helping UK SME owners plan and execute business exits with discretion and clarity.

We work with owner‑managed businesses typically generating £1m–£30m revenue, often in operationally intensive and fragmented sectors. Many of our clients are:

• Considering a full or partial sale within the next 12–36 months
• Responding to unsolicited approaches from consolidators or investors
• Balancing succession, de‑risking and legacy concerns

We help you:

• Assess where your business sits on the platform vs bolt‑on spectrum
• Identify realistic valuation ranges and likely buyer profiles
• Build a pragmatic, step‑by‑step readiness plan that reduces risk and protects value
• Navigate a confidential sale process when the time is right

If you would like a structured view of your current position, you can use our Exit Readiness Calculator to receive a high‑level assessment and suggested next steps.

To explore your options in confidence, you can book a confidential consultation or try our  Exit Readiness Calculator to benchmark your current position and identify priorities.

This article is provided for informational purposes only and does not constitute tax, legal, or financial advice. Business owners should seek appropriate professional advice on their specific circumstances, particularly in relation to tax and transaction structure.

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