Deal or no deal?

 

Whether good or bad, Britain leaving the EU will cause uncertainty. Any period of economic disruption can have a negative impact on M&A activity, but what would be the extent of any impact and what impact would it have on those remaining in the EU and in other parts of the world?

Let’s start by looking more specifically at deal activity. Last year there were record levels of global activity in M&A but this year there’s substantially less M&A activity and relatively few big deals going on.

For the UK to potentially miss out on substantial mega deals could be a big problem. As with any sort of competitive environment, when companies or nations miss out on an opportunity, it means that someone else is beating them to it. In this case, is it that overseas buyers will become more attractive? It’s certainly a possibility that mega-corps will direct their business elsewhere.

One thing remains unclear: would Brexit make the UK less attractive?

There’s no denying that the UK has a strong economy, its clear regulation and attractive tax rates will, ultimately, balance things out. But, still, there’s a lot of uncertainty around the longer-term impact.

Britain leaving the EU doesn’t just affect the UK. For example, what does it mean for M&A activity and deal opportunities for those who are still part of the EU? Many countries, particularly those in the US and Asia, have traditionally seen the UK as a safe route into the European marketplace. In fact a significant a number of investors have located their European headquarters in London and the UK deals with a lot of non-EU territories, more so than any other country in the EU. Either way it’s likely we will see some change to that strategy of companies seeking a UK deal as an entry point to Europe before unlocking the wider market. But it all depends on the deal the UK negotiates with the EU; what this deal looks like and more importantly, how it will affect other trade deals around the world.

How might other EU members benefit?

On the other hand, the UK leaving the EU might be a good thing for other EU members. Here’s why:

• It might force investors to choose between the UK and the EU and many of them might choose to divert funds from UK investments preferring to invest in the combined market of the EU.
• Global investors are more likely to invest in assets that would generate greater returns within a larger and free market.
• The reduced influence of the UK as a smaller player might also be a crucial factor.

The deals market is extremely competitive and as part of the EU, the UK benefits from many trade agreements. Then again, a MergerMarket report released last year showed a surge in the UK M&A activity, with UK deals accounting for 45% of all European deals in the first half of 2015. Inevitably there will be a lot of uncertainty attached to the EU referendum and so it’s difficult to ascertain whether a Brexit will make deal activity in the UK less attractive. After all, the UK still has a lot of underlying appealing assets and a dynamic economy.

Although the outcomes are not clear, this leads me to think, in our more global world, where clients expect global reach and resources at their disposal, is this really what’s best?

Let me know what you think.