As the UK hurtles towards a no-deal Brexit, a postponed Brexit, a really bad Brexit or possibly all three, is now a good time to buy a company?
You might think not. But in fact, data from what was Thomson Reuters Deals Intelligence (now Refinitiv), reported in Global Finance magazine, suggests that mergers and acquisitions are still relatively healthy. In 2018, the number of deals in Europe dropped by 18 per cent to 6,201, but the value of these transactions was a record £579 billion – almost twice as much as the previous year.
UK companies accounted for more than a third of this total, attracting £203 billion of investment. Two of the biggest deals were buyouts of UK companies: Takeda Pharmaceutical’s £47 billion purchase of pharmaceutical company Shire, and Comcast’s £30 billion takeover of Sky.
Why are UK companies attractive?
The cheaper pound will have helped make UK companies more attractive to foreign buyers – £1 is worth $1.32 at March 2019, compared with $1.49 on the day of the referendum. Interest rates are also low, making it easier for firms to borrow money – a situation which, if it continues, may cushion them somewhat against a period of instability. But mergers and acquisitions are also decisions that companies make for the long term, and as such, Brexit is not necessarily a major factor.
Richard Cranfield, a partner with London law firm Allen and Overy, said that the UK had lost out on some investment, but added, “Brexit is essentially a local issue. When you actually scratch the surface, it is really important to some sectors, but not across the entire economy, and people are taking a five-year view.”
That said, Allen and Overy published a report in January suggesting that there was still a lot of uncertainty in the UK mergers and acquisitions market. The report also said that many companies had been slow to prepare for possible major economic disruption, and had not fully considered how issues such as regulatory equivalence, free trade agreements and World Trade Organisation rules would affect them in the event of no deal.
Enforcing competition law
Brexit is also likely to affect competition law. The UK has had competition laws since 1948, but for the past few decades, many of the biggest cases concerning mergers, anti-competitive agreements and abuses of dominance have been dealt with under EU law by the European Commission and European Court of Justice.
In a speech to the Advanced EU Competition Law conference, Michael Grenfell, executive director for enforcement of the UK’s Competitions and Markets Authority, the body which will now take over this role, noted that while disengaging competition law may prove unpopular with many, there are some advantages to it.
One of the major benefits is that the UK authorities will be able to examine and rule on the competition aspects of mergers and acquisitions that affect the UK market. Previously, they were prohibited from this, and many of the biggest transactions, and sometimes the most important, were free to occur without independent scrutiny.
He pointed out that other countries successfully apply their own competition laws, adding, “Britain’s is a pretty mature and experienced competition regime, with real expertise in our courts, enforcement authorities and institutions, and excellent contacts and relationships across the globe.”