UK Mergers & Acquisitions Rise Despite Brexit
When we are asked by clients about Brexit, we liken it to a wall being built across a piece of land in that it affects both parties on each side of the wall. Whilst no deal has yet been agreed, many companies will be preparing for a hard Brexit scenario which, in very simple terms, will require UK companies to establish operations within the EU so that they can sell goods within the region free from tariffs. Airlines have already started this process with Easyjet choosing Austria as its new European base. Conversely, many EU based companies will now be thinking about how they will access the UK market following Brexit and whether they will need to establish similar operational hubs within the UK. The net result of these extra bases is higher costs for consumers.
In all the coverage of Brexit, it is often forgotten that the impact of this separation of trading arrangements is a global issue. The potential for the UK to achieve trade deals with China, America & India could make buying UK companies more attractive to corporates based within these countries.
Following the Brexit vote the value of our currency fell which was great news for exporters, made UK companies look cheap to overseas investors but was less welcome news for UK holiday makers travelling abroad.
Over recent months, the re-emergence of political uncertainty in Italy and Spain has encouraged investors to reassess their eurozone holdings. In May we saw the biggest back-to-back monthly increases in allocation to UK equities since before the Brexit vote despite the demise of Carillion and the well publicised difficulties for Mothercare, Carpetright, House of Fraser and Debenhams.
The comeback has been driven, in part, by M&A activity which has hit an all-time year-to-date record in 2018 with the total value of UK deals standing at just over $260 billion (source Thomson Reuters). Overseas buyers have been lured by the weakness in Sterling, with Takeda of Japan buying Shire Pharmaceuticals for $62 billion. Sainsbury’s is also planning a $10 billion bid for Asda, and banking group CYBG bid for Virgin Money. Many will also have seen that Rupert Murdoch’s Fox Corporation received approval to buy Sky provided it sold Sky News.
Whatever the future may hold, companies are continuing to invest within the UK and preparing for the post Brexit future. The sheer amount that they have invested year to date suggests that they believe the UK will remain a profitable place from which to do business over the coming years.
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