The impact of the UK’s vote to quit the EU on the 23 June 2016 is beginning to come into focus for the financial markets. In July 2016 law firm Baker & McKenzie’s report ‘Global Transactions Forecast’ (modelled by Oxford Economics) said Brexit will cost the UK up to $338bn (£258bn) in lost M&A activity by 2020 and the global economy up to $1.6trn. The report says even in the best case, total M&A will come in at just $749bn between 2016 and 2020, compared to the expected $988bn had the UK voted to stay in the EU. According to Baker & McKenzie the UK IPO market is likely to remain relatively quiet over at least the next couple of years.
So what has happened since the vote?
While there are no full M&A stats for the period following the Brexit vote, according to M&A research company Dealogic, up to 30 June 2016 it has tracked just under 24,000 deals worldwide worth a total of $2.2trn, down from 27,000 worth $2.9trn during the same period last year. The UK has been among the nations worst hit, with 489 deals worth $95.6bn announced, down from 514 worth $153.9bn in the same period in 2015. The UK data coincides with data from Thomson Reuters which stated that the value of deals announced in the UK for the first six months of 2016 was around half the $215bn (including net debt) which had been announced by the same time in 2015.
However, other deal makers are more positive. Assessing deal activity in the market for 1H16, Jonathan Garbett, director at Kingston Smith Corporate Finance countered concerns of slowing M&A activity. He said: “Speaking to fund managers generally and having taken deals to market post-Brexit, we have seen a ‘business as usual’ approach although specific sectors may experience delays due to market uncertainty. Overall though, the investor attitude seems to be one of continuing to look at new opportunities as they arise […].”
UK assets going on the cheap
Helping to drive activity will be US and Asian companies. In August 2016 Peter Gray, head of financial services at Cavendish Corporate Finance, told City A.M.: “As the fundamentals of the UK economy remain strong, we can expect the weakness in sterling to continue to fuel appetite from US, China and Japan, which will continue to be main sources of buyers of UK businesses.”
The interest from foreign investors can already be seen in the deals that have emerged since the Brexit vote. The biggest deal announced so far in 2016, involving a UK company, was the £24.3bn takeover of Cambridge-based chipmaker Arm by Japan’s SoftBank, thought to be have been partially prompted by the falling value of the pound. Others include football club Wolverhampton Wanderers being acquired by Chinese investment conglomerate Fosun International Ltd and North America’s AMC Entertainment Holdings’ acquisition of Odeon and UCI cinemas for $921m.
Stephen Bailey, co-manager of the Liontrust Macro Equity Income fund (10 Aug-16) says there are a number of British companies that could appear even more valuable: “There are some very good specialist engineering companies over here and there are a number of attractive financial services names. Quite possibly we could see bids for asset managers.
In August 2016 Fox Business reported that post-Brexit, the UK has witnessed 54 inbound deals worth $38bn, demonstrating the UK’s attractiveness for overseas investors. The same article says that overall, the UK’s inbound deal value stood at $37bn in July 2016 – more than four times the value registered in July 2015 ($9bn) – and significantly higher than the average July value ($12bn) seen over the last 10 years.