Dealmakers remain buoyant about Britain despite Brexit

02 November 2017 Consultancy.uk

UK remains the top destination for global dealmakers looking to invest in Europe, despite uncertainty resulting from Brexit. Meanwhile, over half of some 3,000 worldwide executives polled said they were planning a deal in Britain within the coming 12 months.

Since a shock poll in Summer 2016 confirmed the United Kingdom’s intent to leave the European Union, speculation has been constant and varied regarding the impact that Brexit would have on the economy. Earlier in the year, Chief Financial Officers told researchers from Deloitte that they were, in fact, upbeat about the prospects arising from Brexit. Just three months later, however, the same business leaders stated that they were unnerved by the unknown quantity of Brexit – with turbulent talks having been hamstrung by the UK government’s loss of its Parliamentary majority – following a calamitous snap General Election which had been intended to strengthen Theresa May’s negotiating hand.

Further adding to the inconsistent debate, a report from Grant Thornton found that investors, particularly in the food and drink sector, were under threat from the long term impacts of trade tariffs and closed borders arising from Britain’s divorce from Brussels. Now, a new poll of almost 3,000 executives across 43 countries, performed by Big Four professional services firm EY, has confirmed that investors across all industries still regard the UK as an attractive long-tem prospect.

Pursue M&A in the next 12 months

According to EY's Global Capital Confidence Barometer, investors are taking tense Brexit negotiations and slowing economic growth in their stride, with executives from around the world ranking Britain third behind the US and China as the top investment destination. The research therefore suggests that despite fears that Brexit would be bad for British business, global dealmakers still see it as the top destination in Europe, ahead of Germany and France.

While the UK briefly fell to fifth place in the same survey last year thanks to the initial panic that followed the referendum to split from the European Union, it has snapped back. This bounce was in part because the pound's Brexit-induced slide made targets cheaper. This is exemplified by the record real estate deal activity in London at present. In the first half of 2017 alone, £5 billion in Chinese capital was sunk into Britain’s capital city, as the low pound continues to make the present financial hub of Europe an attractive prospect, despite an uncertain future for links with the continent.

Apart from Britons, American and Australian buyers have been the most active on Britain's M&A playing field. While M&A activity in the EU fell, its overall value rose, and it was bolstered substantially by spokes in the UK. Over the Summer, Vantiv agreed to spend £8 billion ($14.3 billion)buying e-commerce payments company Worldpay Group, while McCormick & Company took over Reckitt Benckiser Group's food assets for US$4.2 billion.

Changing pipeline & deal completions

Following on from this, M&A activity worldwide is likely to ramp up in the coming year, according to EY’s survey. 56% of respondents said they were presently planning a deal within the next 12 months, while more than half expect the greatest competition in M&As will come from private-equity firms.

Financial hub

Steve Krouskos, EY's global vice-chair of transaction advisory services, said, "The UK is home to the most important assets sought by dealmakers – technology, talent and intellectual property – so it always has been and always will be a major player.”

"The resurgence of private equity could be the biggest M&A story over the next 12 months, and see corporates challenged much more aggressively for assets than during the past five years," Krouskos added. "Brexit creates some uncertainty, but fulfilling strategic growth needs rather than nationalism will drive deal sentiment."

Top 9 investment destinations

At present, in line with what Krouskos believes, the results of EY’s survey suggest that despite the problems surrounding Brexit, London’s position as the financial centre of Europe makes overseas investors consider property there worth the risk – and capable of turning over substantial profit once the environment finally settles, post-2019. However, as with Deloitte’s previously mentioned poll, this is liable to change with the shifting of economic and political trends. Recently, the Bank of England predicted Britain stands to lose as many as 75,000 financial services jobs following the culmination of Brexit, while the financial institution is expected to raise interest rates for the first time in more than a decade, increasing the cost of borrowing for British households that are already hurt by an earnings squeeze.

The initial cut in interest rates from 0.5% to 0.25% was an emergency action taken as a precaution following the EU referendum, as the Bank sought to avert a recession. While a slump did not materialise, the British economy appears in worse health than most other major countries, with potential to be blown further off course by faltering talks to leave the EU. As further stagnation in wages has decreased consumer spending power, increasing reliance on borrowing once more, the measures may have further implications for the UK’s growth in the long-run – and in turn make Britain a less attractive prospect for investment.

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