VAT on M&A fees can be significant - 20% of legal fees, accountancy fees and some investment banking fees. If the client cannot recover the VAT from HMRC then it will be a real cost of the deal.
VAT recovery is a particularly tricky issue where a UK newco is set up to act as the purchaser on an M&A deal. The law and practice on this issue are in a state of flux but recently published HMRC guidance is that holding companies will need to charge substantial management fees if they want to recover the VAT they incur on M&A fees. The management fee must be high enough for the holding company to recover its costs over a "sensible period" (HMRC suggests 5 to 10 years). Charging higher management fees will have other tax consequences that need to be considered.
This one page note provides more detail.