BREXIT: the start of a depressed M&A market?

After having talked about the impact of political and economic changes in the global M&A activity, we saw Brexit, the shocking exit of UK from the European Union as the key concern and an essential factor in the expansion of M&A activity within the UK as well as globally.

It is one of the headwinds we come across in the face of global M&A deals, that froze the dealmaking activity involving British companies, hence, deaccelerating the M&A activity.

Tim Gee, M&A partner of the law firm Baker & McKenzie discuss how the volatility in the market will definitely lead to a decline in the M&A activity, but this decline might vary with the size of companies and the impact of deals.

Brexit, the result of EU referendum might slow down the UK to UK M&A activity but will not precisely affect investment into the UK. As said by the chief executive of the listed investment firm Zegona, Eamonn O’Hare, the decline in British currency will open doors for foreign investment in the UK and lead to depreciation of UK assets,  making them vulnerable to international takeovers.

Hence, the decline in sterling and cheap borrowing rates in UK have been reasons for a positive future of the British M&A market and hence, are the prime reasons for robustness in this sector despite the so-called aftermath of the EU Referendum. (Mathew Smith, Barclays).

This continuous uncertainty that has been discussed and brought into light in the post Brexit world could have various elements. Some of these elements could be:

  • Separation of a UK merger clearance process and an EU merger clearance process
  • Duplication of costs
  • Different timelines

As argued by the CEO of Domtar Corp, John Williams, buying a UK company is simply buying an international business and hence, Brexit would not be a barrier for large M&A deals considering they are global expansions. But the effect of Brexit might have an adverse impact on the middle ground companies of FTSE 250 because of their size and the uncertainty mentioned above, might affect such mid-size M&A deals.Such companies might become a part of the “wait and see mode” around this market volatility, leading to longer transaction processes in order to create high-value investments.

In my opinion, the nature of activity of M&A deals will definitely affect the large cross-border deals involving UK companies. I believe, takeover of UK companies might be stabilized because of the positive influence of downfall of the UK currency in the long run, but will definitely impact the relevance of UK, especially in European M&A. The lack of free trade with the exit of UK from the EU and  increase in regulation-related provisions will be factors slowing down the M&A market for UK companies.

The M&A ecosystem might shrink since, London, the capital city, might not be an appealing entry point for corporate and financial investors around the world.

The post Brexit Britain still involves a lot of uncertain and pending decisions around the trade and investment policies leading to volatile market conditions and a dynamic political environment. Therefore, 2017 is likely to bring in a lot of new surprises and shocks in the global M&A world.

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Author: simer

A graduate with a Masters Degree in Accounting and Finance from Warwick Business School. I am a quick learner and wish to excel in the field of corporate finance. My educational background and work experiences have given me the right mix of academic knowledge and practical application of Accounting and Finance concepts.My international exposure has convinced me that I have the right attitude to learn and work in a multi-cultural workspace. I am self-motivated and enterprising, with an excellent combination of academic ability, leadership, communication and organisation skills. I demonstrate high levels of drive, energy, commitment and initiative to achieve my goals. Specialities: Financial Analysis, Financial Management, Research, Mergers & Acquisitions, Value added analysis, Cost Accounting

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