In the aftermath of the UK’s June 2016 EU referendum, Theresa May announced that a “proper industrial strategy wouldn’t automatically stop the sale of British firms to foreign ones, but it should be capable of stepping in to defend a sector that is as important as pharmaceuticals is to Britain”.
Statements of this sort suggest that, post-Brexit, the UK would be more inclined to protect national interests by applying industrial policy considerations to both domestic and international M&As. At present, such a possibility is ruled out as the UK, being a Member State of the EU, must abide by the EU merger control laws, as well as EU laws governing the free movement of capital and freedom of establishment.
Ultimately, a major consideration in this respect is the post-Brexit model adopted:
In this regard, an intuitive way to preliminarily assess the UK’s post-Brexit M&A prospects is to inspect the M&A activity in the UK during 2017Q1. The performance of the UK M&A market during this period of high uncertainty could serve as an indicator of investors’ beliefs over the appeal of the UK as an M&A destination post-Brexit. Focusing on incoming data from 2017Q1 is most helpful in this respect for two reasons:
Overall, 2017Q1 presents a mixed picture in terms of UK M&A. More specifically:
The increase in transaction value is to a large extent due to a considerable increase in “mega-sized” deals (i.e. above £1 billion in deal value). More specifically, while volumes fell in each of the remaining value segments (i.e. small, mid and large deals) by 13, 31 and 3 per cent, respectively, there was a 56 per cent increase in deals that exceeded the £1 billion threshold in 2017Q1, relative to 2016Q1. It is worth noting that a considerable part of these mega-deals involves foreign acquirers. For instance, these M&As include:
Amidst growing political turmoil globally (e.g. the upcoming elections in France and Germany as well as the political situation in the US), evidence of this sort suggests that dealmakers are getting used to this uncertainty as a feature of the M&A landscape. The data illustrates acquirers being ready to engage in bold M&A moves, rather than sit and watch how the negotiations eventually play out.
Such shifts in attitude are further reflected in chief financial officer (CFO) surveys. For instance, the recent UK finance chief survey illustrates that only 11 per cent of surveyed CFOs expect M&A activity to decrease over the next three years as a result of Brexit, down from 40 per cent immediately after the referendum.
Throughout its history, the UK economy has proven its resilience to a plethora of shocks, while a recent study shows that London remains the capital for fast-growing European companies. Overall, these suggest that the corridor between the UK and Europe is likely to remain busy this year, resulting in strong M&A activity.
 The UK Government could, however, engage in more permissible interventions than it has to date.
 See Harris, R.S. and D. Ravenscraft (1991) “The Role of Acquisitions in Foreign Direct Investment: Evidence from the U.S. Stock Market” Journal of Finance, Vol 53, p.825-844
 See Experian Business Research (2017): "United Kingdom and Republic of Ireland M&A Review: 2017Q1"
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