Much has been made of the effects of Brexit on the manufacturing, farming and fisheries sectors, but crucially, an area that has not received as much coverage and clarity is the impact of the UK leaving the European Union will have on the M&A sector.
Tonight as the clocks strike 11pm the UK will officially leave the EU, closing the curtain of decades of membership and access to the free markets of Europe, and although trade deals, borders and business needs to be organised, discussed and ratified, it needn’t be all doom and gloom according to Alan Farkas, partner at the international law firm Dorsey & Whitney. "Whilst Brexit inevitably caused great uncertainty and with it a significant drop off in M&A activity, there is a growing sense amongst both Corporates as well as M&A professionals that the tide may be about to turn. Indeed, much has already been written about the “Boris Bounce,"" Farkas says.
"It remains unlikely that there will be much clarity before the Autumn in relation to the specifics around a trade deal with the EU. Between now and the end of the transition period under the Withdrawal Agreement, the UK Government will take action to stimulate the economy and lay out plans to reinforce the message that the UK is “open for business” and is an attractive place to invest," Farkas says.
Will Brexit Make the UK More Attractive?
There has been more words written that could be classified as either project fear or project reality – depending on which side of the vote you sit – and experts and analysts have espoused much evidence to back up their various assertions about the outcome of the UK’s exit from Europe, but the unanswered question is whether Brexit will make the UK a more attractive proposition for businesses and facilitate growth in the M & A markets.
Again, Mr Farkas suggests that this may indeed be the case: "Whilst a lot has been said about, the threats and risks associated with Brexit, there may be several positives that could potentially make investing in the UK highly attractive to foreign businesses."
Exchange Rates
“With continued uncertainty over what form a “comprehensive” trade deal between the UK and the EU will take, the “pound” is unlikely to strengthen in the short to medium term. Therefore, the opportunity for foreign buyers to invest in UK assets at an attractive price will remain for some time," Farkas says.
Regulatory alignment
“The UK Government continues to insist that it does not wish to have long-term regulatory alignment with the EU and on that basis there would be less “red tape” faced by UK companies making the UK more attractive as a place to invest with increased regulatory flexibility," Farkas says.
Zero Tariffs
“Whilst there remains a lot of “grand standing” by both sides over the terms of a trade agreement between the UK and the EU, there is a general acceptance (as stated in the political declaration that accompanied the Withdrawal Agreement) that trade between the UK and the EU will be based on “zero tariffs and zero quotas”. Stephen Barclay the UK’s Brexit Secretary has stated “it’s in both sides interest to keep the flow of goods going," Farkas says.
Services Sector
“Whilst originally there was considerable concern as to the potential impact of Brexit on the UK’s financial services sector – in recent months there has been a growing acceptance that there could be a significant upside for the UK’s financial services sector of not being aligned with the EU in terms of financial services. After Brexit, the UK could boost financial services by lowering capital requirements, easing taxes and loosening labour laws. UK financial services is not as geographically limited as goods, and can therefore instead focus on building new relations with other financial hubs around the world such as Hong Kong and Singapore," Farkas says.
"The “equivalence regime”, the system by which the EU will allow the City of London to access EU markets on condition that financial regulations mirror EU rules, can be withdrawn on 30 days’ notice, the practical realities are that the City of London dwarfs the financial sectors of Paris, Frankfurt and Amsterdam. The EU would be most unwilling for the UK to leave its regulatory orbit in the short to medium term," Farkas says.
Each of these factors potentially stand the UK in good footing to move forward in its new form without the European Union. And while there are no certainties with Brexit as yet, in the short term it should at least offer those on the leave side a further sense of excitement and perhaps a glimmer of hope for those who voted remain that the M&A future for Britain could be bright.
