Kevin Uphill, chairman of Avondale, assesses the potential impact of Brexit on M&A activity in Britain and considers how businesses will adapt if the UK leaves the EU
In 2015, M&A activity broke pre-recession (2007) levels with the UK accounting for 55 per cent of all European transactions. But what might happen if Brexit is the result of June’s referendum on Britain’s continued EU membership?
There have already been 587 UK deals announced so far in 2016 – an 11.8 per cent rise on the same period last year. This increased activity is due to a multitude of factors, including the slow-growth economy, readily available funding, low interest rates, private equity funds with cash reserves that need investing, and sellers being happier to sell in a climate where hungrier buyers are driving deal values.
So things are finally looking up. Or are they? The question on everyone’s lips at the moment is: what will the impact be if Britain exits (Brexit) or remains in the EU, on anything and everything – the economy, business, holiday homes, everyday life etc?
Brexit: can UK businesses adapt?
The possibility of the UK leaving the EU is nothing new. We have been discussing it since the day we first entered what was then the Common Market in 1973.
More recently, David Cameron based his general election campaign around the EU referendum. The date for the in-out poll has now been set for 23 June and the world has suddenly awoken to alarm bells of fear-mongering and panicking.
The decision for the UK to join what is now the EU was primarily based on the benefits of a trade agreement rather than the welfare restrictions that now accompany membership. The Conservatives used the threat of the referendum to renegotiate Britain’s contract with the EU to meet their terms, which they now claim have been achieved.
The power that enabled the UK to renegotiate the deal is the fact that, while we trade within Europe, we also do so extensively in non-EU territories, primarily the US, Asia and South America – more so than any other country in the EU. UK exports to non-EU territories account for approximately 67 per cent of all exports. So we could leave and we would survive.
Acquirers have known for a long time that the referendum was coming. M&A statistics prove that this is not putting them off. They may be doing more due diligence to minimise risk, but that is nothing new in today’s world. The potential merger of the London Stock Exchange and Deutsche Börse demonstrates that even complex cross-border transactions are plausible despite the looming referendum.
Businesses don’t just invest in the UK because of our membership of the EU. They invest because of our stable financial, regulatory and legal systems – not to mention the fact that we have one of the lowest corporation tax rates in the G20. Indeed the number of international acquirers of UK companies has increased in the past year, accounting for 44 per cent of all announced transactions.
We need to remember that UK business has battled through the recession and has come out tough, agile and resilient; we plan, we adapt, we move faster, we invest wisely, we survive and hopefully thrive.
Collapsing oil prices, the eurozone and Middle East crises, volatility in China are now practically mere hiccoughs. We are used to operating in this new, fast-changing, uncertain and volatile world.
My prediction – whether Britain leaves or remains in the EU – is that UK business (and with it M&A activity) should remain largely unaffected, will rapidly adapt to whatever environment we are presented with, and continue to grow.
There may be a temporary lull while we reassess our new environment but momentum will resume and M&A activity will continue to increase, especially in a slow-growth economy.
The views expressed in blogs such as the above are those of the author and do not represent the views of the Institute of Directors.
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Kevin Uphill is a member of IoD Surrey