Brexit opportunities for M&A

The ultimate outcome for Britain post-brexit remains uncertain. What does seem clear is that UK merger and acquisition (M&A) activity has been sorely impacted by the ramifications of the result. Historically, the UK has been one of the most active M&A markets in Europe. The run up to the referendum, however, saw a significant reduction in both deal volume and value, dropping 20 per cent and 68 per cent respectively when compared with the same period in 2015. The outcome of the vote subsequently cooled dealmaking activity to its lowest level in 20 years. The reasons for this seem clear; the result of the referendum triggered what many have called the deepest political and financial turmoil in Britain since the Second World War and resulted in the largest ever one-day fall in sterling against the dollar. The subsequent increase in uncertainty for investors led many, including both strategic and private equity buyers, to adopt a significantly more considered approach towards possible M&A opportunities. This extended period of uncertainty, however, has also provided a unique investment environment for those who are in a position to harness it. Special situation private equity investors, for example, have seen a significant surge in investment opportunities following the result. The fall in the value of the sterling and the drop in consumer confidence has ramped up the pressure for many businesses, especially within industrial and support service sectors, bringing FX, interest rate and commodity price factors to the fore. With profits warnings issued from UK companies such as Mitie and Capita many appear to have been caught out. The last few months have seen handful of companies, under more pressure than ever to review their strategic options, seeking to divest their non-core assets, including information services provider Experian, who is looking to offload its email marketing business. Stationer Office Depot Inc has also recently announced its intention to sell its European arm to special situation investors Aurelius Equity Opportunities, demonstrating the opportunities available for investors who are able to offer the strategic operational expertise needed by a potentially increasing number of orphaned noncore business assets. As John F Kennedy once observed: “The Chinese use two brush strokes to write the word ‘crisis.’ One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger – but recognise the opportunity.” Whilst the result of the EU referendum has clearly had a sizeable impact on UK deal activity, there is still significant investment opportunity to be had in the postbrexit world, and as clarity around the shape of the UK remains unclear, this is a trend that seems set to continue into 2017. ● Tristan Nagler is managing director at Aurelius Equity Opportunities