Will Brexit be a major drag on M&A?

July 18, 2016

We have been asked the question almost daily over the last month (July 2016) by numerous business owners, funders and investors - “What does Brexit mean for deal activity and how will it impact upon me?”

It’s an almost impossible question to answer as “it depends” – yes, a complete “cop-out”,we know but in an age where we’ve moved from Harold Wilson’s famous phrase a “week” being a long time in politics to what seems like the new norm of a “day”, we think it’s safe to say that the answer will not remain the same over the coming months!

Nevertheless, there a number of themes that we feel will emerge and whilst what follows is not an exhaustive list, these represent our best view of the likely M&A impact of Brexit at the current time:

Larger transactions (over, say, £30m value) will be hit harder than smaller deals as funders/equity investors/corporates take longer to digest the impact of the UK’s vote given the more material cheque size;

Businesses heavily reliant upon the EU are likely to have a “valuation drag” because of the uncertainty attached to what Brexit means and how to price that risk into valuation models;

USA acquirers will initially recoil from seeking out UK acquisition opportunities put off by Brexit but then be brought around by the relative “cheapness” of the UK versus other overseas markets – any UK business with significant exports to the USA may be ripe to be acquired over next 24 months;

Smaller transactions (certainly those under £20m) and with no material exposure to the EU will largely feel no impact and may even see an increase in M&A activity boosted by cheaper availability of debt and expected favourable tax stimulation announced in a pro-business Autumn budget;

‍Given the political and economic uncertainty, the “window of opportunity” for an acquisition or disposal could open up and close even quicker than previously experienced -  it will be more important than ever for a Vendor to be prepared for that sale if the “window opens” briefly for them;

‍UK corporates will look to the EU for acquisition bolt-on’s in order to diversify risk and maintain a foothold in Europe – we expect to see this activity pick up in the first half of next year (2017) as the impact of Brexit has been fully digested;

‍There will be a flight in the short-term towards safe, defensive investment opportunities and acquisitions where the fundamentals are strong – we could even see a potential increase in valuations in these areas; and

Never forget that where there is change there is opportunity – Brexit will result in a new generation of businesses that are winners - those who have looked upon the Vote as an opportunity and not a threat to growth. 

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