Deals and IPOs

M&A shutdown? How a Brexit could hit dealmaking in the UK

Brexit is deterring M&A: Director
Brexit is deterring M&A: Director

A so-called Brexit at next week's U.K. referendum is likely to dent to mergers and acquisitions (M&A) in the country and could lead to talented financial professionals leaving the City of London, according to new research.

The new report, published Thursday by specialist financial consultancy The M&A Advisor, states that dealmaking in the U.K. has already been affected by the June 23 vote and outlines a number of possible outcomes if citizens decide to opt out of the European bloc.

"After a record year of domestic and foreign M&A investment in the U.K., we have witnessed slowing deal flow over the past six months with (first-quarter 2016 private equity/venture capital) volume at a paltry 500 transactions compared to over 800 one year earlier," David Fergusson, the Chief Executive and president of The M&A Advisor, said in statement alongside the report.

"(The second quarter) of this year saw volume slide to under 300. This is a dramatic change of events and the threat of an EU exit by the U.K. is at the center of it."

‘Deleterious effect’

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The report contains a survey of 600 respondents from a total of 35 countries as well as in-depth, one-to-one interviews with leading market practitioners from companies such as Winchester Capital, audit firm PwC and Wilbur Ross's private equity firm WL Ross & Co. The research concludes that a vote to leave the EU, according to most viewpoints, would likely result in a period of "considerable and prolonged uncertainty."

A "widely-held" view among these market participants was that a vote to leave the EU would lead to long-term uncertainty which would have a "deleterious effect on transactional activity". Some respondents also spoke of a potential "brain drain" with key workers heading to other financial centers in Europe.

"London as a market is about people; about international people. It is a market with these people choosing to work in London and about the free movement of workers and a culture of bringing together the best brains from all over the world," David Crook, a partner at international law firm White & Case, said in one of the interviews transcribed in the report.

"The effect (of a Brexit) would be slow but either it will shore up people's resolve to ensure that London remains the leading financial center or European centers such as Paris and Frankfurt will try and take back some of their financial services industries."

Get on with business?

Within the survey, 60 percent of respondents felt that the U.K. would be less likely to prosper if it left the EU. A similar proportion said that Britain would be less likely to attract overseas investment.

Among the respondents, 60 percent said that U.K. businesses would be less attractive to overseas acquirers in the short term if Britain votes to leave. In particular, 56 percent of respondents thought that EU-based businesses would be less likely to acquire U.K.-based ones, and half of respondents thought that businesses from the United States would be less likely to acquire British ones.

Nonetheless, Alun Baker, the managing director of Merrill Corporation, a technology services provider for the finance industry, tempered some of the viewpoints within the report, suggesting that dealmaking would still continue no matter what the result on June 23.

"I believe the markets will let out its collective held breath and get on with business, regardless of whether that is adjusting to the new opportunities presented by Britain's independence from the EU or the perceived security of further embracing the centralized European model," he said in the report.

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