M&A in Europe update: The Brexit effect on manufacturing
May 10, 2017
2016 was a year of political turbulence for the UK and Europe which had an impact on M&A and the Manufacturing sector as a whole. 2017 has already seen more politics come into play, but how are the markets reacting and what is happening to deal volumes so far this year?
The UK Manufacturing Purchasing Managers’ Index continues to perform strongly in the first quarter despite declining slightly since the last quarter of 2016, due to exports growing more slowly and rising inflation pressure suppressing the demand of UK consumers. UK Manufacturing PLCs continue to outperform the FTSE 250, driven by the Sterling remaining below pre-referendum levels and the majority of businesses earning a significant amount of their revenue abroad. For example Vesuvius plc and Fenner plc have both seen share price increases of over 40% since the last quarter in 2016.
UK Manufacturing PLCs may face headwinds as input cost inflation rises above pre-referendum levels which is leading to factories increasing prices to customers. Recent news suggests that the US will progress free-market trade negotiations with the EU before it does so with the UK which could prolong uncertainty for UK exporters further into the future. Donald Trump has also promised to boost domestic manufacturing which could impact UK manufacturing companies, especially those in the automotive sector as a significant amount of vehicles manufactured in the UK are exported to the US. On the other hand, Theresa May’s decision to call a general election on June 8th appears to have resonated well with business leaders as this could provide the prime minister with a stronger hand to negotiate a soft Brexit if she wins a larger conservative majority.
We are seeing deal volumes declining, especially in Europe. The uncertain political environment, security concerns as well as the tightening of capital outflows by the Chinese government are likely all contributors to the drop in deal volumes so far this year. The effect that political unrest will continue to have on deal volumes is unclear, however we would expect inbound M&A to increase if the Euro and Sterling remain subdued as we start to gain more clarity around the Brexit negotiations.
What has been your recent experience in the market? Please share your thoughts below or schedule a meeting to discuss your situation in confidence.