A lot has happened since 23 June 2016 when the UK voted to leave the European Union and in that time there has been a lot of conjecture around the impact of Brexit.
Corporate partner Richard Robinson considers what Brexit might mean for the corporate mergers and acquisitions (M&A) market.
Since the Brexit vote, the UK M&A market has continued without falling of a cliff. A number of transactions may have stalled and some cancelled in the immediate aftermath of the vote but UK M&A activity in that period has continued against a backdrop of the wider political and economic uncertainty.
A weakening pound and currency fluctuations have inevitably created opportunities for overseas buyers and an increased number of foreign purchasers is a feature we have seen in the market.
As always in M&A markets, economic confidence is a key driver in respect of the volume of deals being executed, so the continued uncertainty around Brexit is not a welcome feature of the current UK and European M&A landscape. However, Brexit does throw up opportunities for UK business as well as overseas entities and as ever, some sectors will benefit from severing ties with the European Union, whilst others will struggle as a direct result of Brexit or as a result of the economic and political head winds whilst we work out how to make it work.
M&A Operational Impact
Private company M&A activity is largely covered by English contract law. This will remain largely unaffected by the Brexit process. English law has long been the preferred choice of jurisdiction for international transactions and it may be that as a result of our diminished influence in the EU that overseas parties will look to have transactions governed by other jurisdictions. However, the day-to-day process of buying and selling any UK private company will remain largely unaffected by the withdrawal of the UK from the EU.
Brexit will have a greater legal impact in other areas of corporate life and the underlying legal issues arising from Brexit. This includes areas such as intellectual property, data protection, employment and commercial contracts. Operational factors such as changes to the regime governing importing and its effect on supply chains will of course, have a greater impact on the day-to-day operational lives of companies and therefore the number of transactions and the nature of the transactions being completed. A number of areas such as merger control and personal data are heavily reliant on EU regulation and in areas such as this there may be legal and operational changes which could have a knock-on effect on M&A activity.
The regime governing public takeovers in the UK is likely to remain largely unaffected, despite having a trans-European dimension. The City of London is a key financial centre and the regime regulating public company takeovers is unlikely to change in an immediate post-Brexit world.
The EU has no framework in respect of international mergers and acquisitions and any transaction is governed by the jurisdiction on which the parties have chosen to base the deal. As a result the impact of Brexit will remain largely immaterial to cross-border transactions.
Any potential buyer or seller of a business will need to consider the underlying impact of Brexit on the company concerned, and the specific implications in areas referred to above and covered elsewhere in the Brexit section of our website.
Currency fluctuations are likely to create opportunities for overseas buyers as the pound weakens, but similarly may also give rise to export opportunities for UK businesses. Both of these factors may make UK companies a more attractive target for overseas buyers.
Any economic activity is threatened by uncertainty. The ongoing political economic and commercial uncertainty arising from the Brexit process is as big a challenge to the mergers and acquisitions market and the wider economy as is the fact of Brexit itself. An early resolution to the Brexit process will help not just M&A activity but the wider commercial world.