In association with Avondale
Kevin Uphill, chairman of Avondale, assesses the impact of Brexit on M&A activity and considers how businesses will adapt as the UK leaves the EU
Shock waves surged throughout the UK, indeed globally, as Britain voted to leave the EU. Markets plummeted, Cameron stepped down as Prime Minister and updates fired through by the second. Mark Carney, Bank of England, switched to his contingency plan, stating that “Brexit will not cause financial crisis”. The dust began to settle, markets started to pick up and UK business set about setting strategies for success in this new environment.
At time of writing, 2.5 weeks post Brexit, markets rose further with the announcement of interior affairs minister, Theresa May, as Prime Minister, removing leadership uncertainty and reassuring financial investors with the understanding that she will be able to negotiate better terms for the UK in relation to the EU. Following the dramatic drop, the FTSE 250 has now bounced back to pre-Brexit levels and the FTSE 100 is at an 11 month high.
So, against this backdrop, what’s the impact on M&A?
Acquisitions are crucial to success in a slow grow economy and M&A provides a key route to shareholder value. Transactions are likely to continue in small and mid-cap markets although we may see volumes dip in larger markets until the landscape becomes more defined. Quality assets with sustainable cash-flow and high growth potential become more desirable, not less, in any market slow down.
Capital needs investing and, with poor investment yields and low interest rates, acquisitions become an attractive prospect. Avondale have been contacted by many private equity firms assuring us that they are still very much in the acquisition game.
Buyers do not invest in the UK purely because of our EU membership. They also invest because of our stable financial, regulatory and legal systems, not to mention having one of the lowest corporate tax rates in the G20. The number of international acquirers has continued to increase, accounting for 44% of all announced transactions in the past year. A temporary devaluation of the pound may well attract foreign investors.
UK business has evolved to become robust, agile, resilient and globally respected. It will analyse the effects of the EU exit, plan and adapt and, with pro-business leadership, careful EU negotiation as well as 2 years to adjust to new environment, will survive and more than likely which can only be a good thing for M&A.
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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.