Brexit & Acquisitions
Recently, two of Team FPS put on our smart shoes and headed down to the Dutch M&A and Private Equity Community’s forum on the Impact of Brexit on European M&A, hosted by ING.
Our panel of experts for the evening included Remco Lenterman, soon to join Citadel and one of the most outspoken proponents of High-Frequency Trading, Heinrich Merz, CIO of Amundi Alternative Investments, and Wouter Snoeijers, MD of Levine Leichtman Capital Partners. Oliver August, Chief Europe Editor at The Economist, navigated our trip through Brexit’s muddy waters, and we started with a presentation from James Knightley, ING’s Senior Economist.
Rather than present or refute the economic arguments around Brexit – leaving that to our panel – James tried to contextualise Brexit’s social issues within economic parameters; pointing to the ECB’s decision to raise interest rates twice in 2011 as a catalyst for growing unemployment in Europe, whereas the BoE chose to maintain near-zero rates, curtailing a spike in UK unemployment and restarting economic growth; correlating with a matching spike in EU migration to the UK.
With the social policy out of the way, our panel then took to the stage to discuss the economic arguments around Brexit, and, in all honesty, there wasn’t a huge amount of disagreement. Remco, Heinrich and Wouter agreed that a Brexit would negatively impact the UK, and that there were very few credible economic arguments for leaving the European Union. When pressed to locate one, the panel struggled.
The fact that three of the world’s premier financiers struggled to outline a basic economic argument in favour of Brexit is, on the surface, fairly astonishing. In reality, it represents a deeper, almost universal, agreement: the overall economic argument for Brexit is flawed.
For such a united panel, one would expect the audience to feel leaving the EU would negatively affect their job prospects – as I did. And I was wrong. Upon further inspection – it stands to reason that M&A activity might not be hit badly by a Brexit. Current discourse from the Conservative side of Vote Leave suggests that there would be an effort to remove a lot of EU regulation on businesses, which could create significant advantages for companies based here.
We’re already seeing the attractiveness of London as a corporate base. Post-Brexit M&A departments might see their activity increase as tax inversions, or regulation inversions, become a more attractive proposition for businesses post-Brexit. And let’s not forget the EU bonus cap is a significant source of irritation within the financial services industry.
After the M&A industry saw $4tn in cross border deal volumes through 2015, little appetite for international consolidation seems to have been lost. The true cost of the Brexit debate may in fact be felt not after a decision, but in the information void leading up to June 23rd.
Businesses will always be eager for involvement in the world’s fifth largest economy. The question for M&A departments – and businesses looking to consolidate – is whether the British government can maintain the same appeal post-Brexit. Is there truly a base that offers the same advantages as London?
Let me know what you think – you can find me on twitter @mattonbass