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European Uncertainty Not Affecting Mergers and Acquisitions

By Tim Luscombe

A new report from Deloitte may come as somewhat of a surprise to M&A consultants with an eye on the UK market. The report suggests that not only are mergers and acquisitions not suffering under the weight of Brexit uncertainty, but they are actually increasing in value. Buyers look willing to take aggressive action throughout Europe with the expectation that the politics will take care of themselves.

The Deloitte report shows that the total number of transactions fell from 212 in Q1 2016 to just 188 during the first three months of this year. But the value of those transactions jumped from £3.3 billion to £10.5 billion. As an M&A consultant, I can tell you that a trebling of M&A value in contrast to fewer transactions is exceptionally important.

Bear in mind that as many as 40% of Europe’s CFOs predicted M&A activity would fall over the next several years as a result of the Brexit vote. That number has since dropped to just 10%. This suggests that enoughM&A consultants are urging aggressive action to more than make up for any squeamishness by a gradually shrinking pool of advisers betting against the future.

Three Contributing Factors

Common sense seems to dictate that political and economic uncertainty would severely inhibit any desire to grow through mergers and acquisitions. So in light of the Brexit vote as well as very important elections upcoming in France and Germany, what is fuelling the M&A aggressiveness we have seen so far this year? As an expert M&A consultant, I believe there are three contributing factors:

A Sound Economy – Our economy has been steadily growing in recent years. Despite many fears that we would experience an economic collapse after the vote, no such collapse has occurred. Combining these two realities paints an attractive picture for buyers who may have otherwise worried about putting their money into the UK.

The Lower Pound – A significant factor no one is talking about is the value of sterling. With the pound now hovering at the lowest values we’ve seen in decades, British businesses are suddenly very attractive from a financial standpoint. Foreign interests can buy now, while the pound is low, then enjoy the equity growth as sterling rebounds.

Political Realities – As much as both sides in the Brexit negotiations want the strongest possible deal for their side, at the expense of the other, the political realities are unavoidable. Both the UK and EU fundamentally depend on one another economically. They can split politically without ruining their respective economies – and they will. They cannot afford to do anything else.

M&A consultants look to be more than willing to push for aggressive mergers and acquisitions despite the economic and political uncertainty throughout Europe. Where many people saw few post-Brexit opportunities just a year ago, the vast majority of CFOs and other business executives now seem undaunted by what may come. The sharp rise in M&A value simply reflects that.


City AM –

By Tim Luscombe.

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