The Impact of the EU Referendum on M&A
The looming EU referendum has undoubtedly created much discussion and debate. While headlines have predominantly focused on two issues. Firstly, whether a Brexit would cause a dip in rates of employment and secondly, the position of influential figures and celebrities in the discussion.
Historically, the UK market has acted as somewhat of a gateway for global investors who are seeking expansion into Europe, however the upcoming vote has created a general feeling of caution when approaching deal making. Many commentators have suggested that uncertainty has influenced a number of recent deals and has caused the slowdown of M&A activity in certain industries. Typically deal values have plunged around the time of similar events, for example UK-based deals fell by 45 per cent from Q2 to Q3 in 2014 in the build-up to the Scottish referendum.
Deals in 2015 also began slowly as the UK approached the general election, however the year concluded on its highest year ending figure since 2007 with M&A activity reaching $494bn. 2016 has begun with a similar pattern of a slowdown in activity, with domestic deals in Q1 almost halving from the previous year from $15.8bn to $9bn. While deals in the UK decreased by 44 per cent in in Q1 compared to the same period in 2015, deal values in Europe have increased by 40 per cent. This pattern truly emphasises the impact of a potential Brexit on the UK market, which has previously been the most active in Europe.
Although this outlook may appear negative, the recent downturn in activity indicates the uncertainty that lies amongst decision makers’, rather than more long-term issues. With the most recent referendum poll tracker suggesting that the UK nation remains divided, there is no clear answer as to what the outcome will be. As a result, the very real possibility of a Brexit has been weighing heavily on the minds of those deal decision makers, with 50 per cent of CFOs admitting in a recent Deloitte survey that they have not made any contingency plans in the event of a departure from the EU. While 75 per cent of CFOs responding to the same survey revealed that they are in favour of remaining in the EU, their confidence in a stay vote appears to be wavering as deal making activity continues to be cautionary.
Traditionally the UK market has been favoured by foreign investors due to the opportunities within M&A, with Philippe Lecoq of Edmond de Rothschild Fund UK Synergy pointing out that the UK is “much more liberal” from an investor’s perspective, yet still provides far more protection than other European markets. With this in mind, it is clear that the UK will continue to be an attractive proposition for overseas investors, regardless of an in or out vote on June 23rd.
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