Guest Post: Life after Brexit vote raises M&A interest in the UK

By Lord Leigh of Hurley & Peter Gray
Cavendish Corporate Finance

Note: Like Capital Alliance, Cavendish is a member firm of Oaklins, a group of mid-market M&A advisors operating in 40 countries. The following thoughts were presented at a recent Oaklins conference in Hong Kong.

Uncertainty and fear permeated the United Kingdom after the U.K. voted to leave the European Union last year, but now that the vote is a year behind us, it’s a good time to reassess what has happened since the vote.

Opponents of Brexit predicted an immediate recession and economic turmoil, but in reality the economy has stayed positive with a 0.6% growth rate in the two quarters following the Brexit vote. GDP growth is expected to improve to 2% this year, the second highest among developed countries, behind the U.S.

The Financial Times Stock Exchange is up a very healthy 16% since the vote, and unemployment had dipped to 4.7% as of January, the lowest in 42 years and the lowest in the European Union with the exception of Germany.

Predictions that the U.K. would need an emergency budget never materialized and, in fact, governmental borrowing declined to 2.6% of GDP as of March, the lowest level of borrowing since 2008.

Impact on M&A activity

Although the value of the pound has fallen post-Brexit vote, this has had a silver lining in encouraging overseas investors to consider U.K. mergers and acquisitions.

Britain’s largest tech firm, ARM Holdings, was sold to Japanese firm Softbank for $32 billion (U.S.) last summer, one of several large M&A deals that occurred in the months after the Brexit vote. The ARM-Softbank deal was announced in July 2016, less than a month after the vote, and approved in August 2016 by shareholders.

U.K. private equity firms view the landscape as “business as usual” since the Brexit vote, while U.S.-based private equity interest in the U.K. is at an all-time high. We are seeing strong interest from Japanese, Chinese and U.S. buyers in particular. M&A volume peaked at 1,531 deals valued at nearly £157 trillion in the third quarter of 2016 but has fallen to 1,116 deals valued at £61 trillion in 1Q2017.

A falling currency could attract more deal-making as pricing is extremely competitive, and this could be viewed by some as a vote of confidence in the U.K. under Brexit.

It remains to be seen what impact several recent terrorist attacks in England will have on M&A moving forward, but the Brexit vote was supported by a contingent that has pushed for greater control of Britain’s borders.

To be sure, there’s still plenty of items in the negotiating mix, among them the U.K.’s future trading relationships outside the European Union, continued payments to the EU, and rights for EU nationals just to mention a few. Still, the first year following the vote indicates the situation may not be as dire or as bumpy as some first feared and indicates Brexit has already provided some strong international business opportunities. We expect more on the horizon.

Howard Leigh, Lord Leigh of Hurley, has been a Conservative Party member of the House of Lords since 2013. He is co-founder and senior partner of London-based Cavendish Corporate Finance, a mid-market M&A firm that is a member of Oaklins.

Peter Gray is one of Cavendish’s longest standing partners. He has a wealth of experience in company sales, having advised on the sale of over 80 companies.