Brexit: What You Need To Know - Corporate

July 2016

Our clients have historically engaged in mergers and acquisitions (M&A) activity as a means of creating value for shareholders by ‎capitalising on synergies, securing access to new markets and increasing marketshare in those ‎jurisdictions where they are already operating. The UK has traditionally been a dynamic market from ‎which to carry out such activity due to its reliable regulatory framework, consistent application of law ‎and professional advisers well versed in domestic and international mergers and ‎acquisitions. However, M&A activity is confidence driven. It is no secret that there was a noticeable ‎slowdown in M&A activity prior to the referendum as businesses waited for the results on ‎June 23. Since the ‘leave vote’ there are now understandably concerns regarding the future of the UK ‎economy and level of corporate activity pre and post the implementation of Brexit.

Prior to Brexit, London was arguably the European hub for these transactions. In the absence ‎of favourable trade agreements between the UK and the EU, it has been voiced that corporates ‎looking to access European markets will not see London as the obvious city to set up ‎headquarters. London’s relevance in terms of the centre from which to carry out European M&A may ‎deplenish, potentially making way for another city in the EU to claim that title. Are we really going to ‎see a large number of financial institutions and businesses exit London completely in favour of ‎Frankfurt or Paris (for example) as a result of Brexit? It would seem that businesses will first need to understand ‎whether one option is better or worse than the other and, for that to happen, the dust needs to settle.‎

So what is the issue that is concerning businesses at the moment with Brexit? Current EU legislation ‎provides for a fairly uniform regulatory environment such as merger regulation, employment rights on ‎business acquisitions and, of course, the prospectus rules and the exemptions that apply to the same ‎when corporates seek to raise capital across a number of member states. In addition, a number of ‎authorised financial firms can carry out services across the EU as a result of the regulatory framework ‎offered by the EU – otherwise known as ‘passporting’. Following Brexit, and in the absence of any ‎other arrangement with the EU, such activity for institutions based in London will no longer be ‎available. For a period of time, there is also going to be a lack of clarity as to which EU regulations will ‎continue to apply in the UK and for how long.

There are a number of other countries, such as Norway, that have successfully managed their ‎relationship with the EU through trade agreements. Such negotiations for the UK may, of course, be ‎more sensitive and potentially harder to achieve given it is approaching the relationship as a past ‎member which has decided it no longer wishes to participate.

There is no doubt that financial institutions will be figuring out how best to access the single ‎market. The other issue that boards of directors across the UK will be considering is – what will the EU ‎look like two years from now? What if other countries decide they also want to exit the EU? For a ‎number of businesses life will go on in the UK given its historically stable framework and market, the ‎large number of funds and institutions based here, access to the London Stock Exchange and the ‎opportunities that will emerge with other countries outside the EU. Currently the British pound is weak ‎against the U.S. dollar making UK based businesses attractive as targets although much thought will be ‎given to the geographies from which the revenue is generated. A weak British pound will also assist UK ‎based manufacturers and exporters to flourish and encouraging others to start competing in this ‎market. 

The UK government will need to play its part to ensure the UK remains an attractive place from which ‎to carry out business.‎