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How Will Brexit affect Mergers and Acquisitions?

Businesses planning to expand or restructure through M & A in 2019 will do so against a background of changing political, trading and social conditions.

The fear is that Brexit will lead to a recession in Quarter 4 of 2019 and bring an end to the recent boom of the mid-market M & A sector. Uncertainty is the challenger of business and still questions remain as to whether the UK will leave with a no deal? Will there be a second referendum? Will there be a change in UK government? What will the trading relationship with EU look like? What will be the impact on the pound/exchange rates? Whatever the responses to these questions, on 29 March 2019 businesses will need to adjust, adapt and embrace the changes and during this transitional period it is inevitable deal volumes will fall. Hence 2019 is predicted to see M & A at somewhat of a standstill.

Major Banks have announced their exit from London to cities such as Paris, Amsterdam, Frankfurt and Dublin. This will lead to a loss of £700 billion of financial assets in Quarter1 2019 to insurers and other financial services companies in the UK. Add to this the fact manufacturers with significant capital investments in the UK (such as Nissan) are contemplating whether they remain committed to the UK or shift their operations elsewhere due to the uncertainty of Brexit.

That said the Brexit situation is not the same as the situation UK businesses found themselves in during 2007/2008 as a consequence of the global financial collapse. There are certain UK sectors which will be unscathed by Brexit and it will be “business as usual”. These are markets which have little or no recourse to Europe in relation to imports/exports or workers. The expectation is also that the Private Equity market will not be impacted by Brexit as its primary consideration is the strength of a management team.

The UK is an important contributor to the world stage and this will not change due to Brexit. The UK continues to lead in technology closely behind the US hence making such companies attractive to acquisition.

The UK is also rich with companies in the SME sector where there is no natural succession exit hence the companies will need either a trade exit or management buy out. The outlook for M & A in the UK therefore remains promising despite the challenges faced.