The first budget of a new government is an important gauge of its priorities following the drama and populism which necessarily dictates the political narrative of an election campaign.

UK Chancellor Rachel Reeves is set to outline spending plans for the new Labour government in Parliament today with the country’s National Health Service (NHS) widely expected to be the main beneficiary.

But dealmakers should also keep a keen eye on the government’s plans for housing investment with M&A scenarios involving brickmakers Ibstock [LON:IBST], Forterra [LON:FORT] and Michelmersh [LON:MBH] looking increasingly appealing.

Chancellor Reeves has already announced GBP 500m in additional funding for the Affordable Homes Programme (AHP), bringing total investment in housing supply in the year to 5 April 2026 to over GBP 5bn.

A multi-year spending review is expected next spring, when the government will set out details of new investment to succeed the 2021 to 2026 AHP.

Against this background, GBP 94m market cap brick maker Michelmersh is particularly interesting from an M&A perspective.

It held talks with GBP 413m market cap peer Forterra about a potential deal during the summer, according to a media report a couple of weeks ago.

The transaction was scrapped in part because of competition concerns, according to the City AM report. Brickmaking market share in the UK is dominated by Ibstock, Wienerberger [VIE:WIEN] and Forterra.

But consolidation of smaller players like Michelmersh has the potential to create synergies and increase scale across the industry, potentially making it easier to boost housing production and meet government housing objectives.

With housing a key government priority and increasing political pressure on the UK’s Competition and Markets Authority (CMA) to switch to a more pro-growth agenda, there’s a chance the deal could be revisited.

Michelmersh trades at an enterprise value of 5x forecast 2025 EBITDA, according to data provided by Fidessa* and compiled by FactSet.

That’s a sizable discount to Ibstock and Forterra, which are valued at respectively 9x and 8x for the comparable period.

At the same multiple as its peers, shares in Michelmersh would be valued in the region of 150 pence and 170 pence, according to calculations by The Morning Flash.

That range represents a big premium to its closing price of 103 pence at yesterday’s close and would value the business at between GBP 130m and GBP 150m on a cash-free, debt-free basis.

Ibstock and Forterra could also be possible targets themselves given the government’s housing investment plans.

Both were historically part of broader building materials and construction conglomerates before being divested by CRH [LON:CRH] and Heidelberg Cement [ETR:HEI] to financial sponsors and subsequently listed during the mid-2010s.

Neither Ibstock nor Forterra have gained much traction on the stock market since their respective IPOs.

Ibstock closed yesterday at 201 pence versus a 2015 IPO price of 190 pence.

Shares in Forterra finished yesterday’s session at 193 pence compared to a 2016 listing price of 180 pence.

That’s not much to show for almost a decade on the stock market.

And both could be attractive targets for financial sponsors or larger building materials peers looking to up their exposure to ambitious housing investment plans under the UK’s new government.