'Brexit' Clouds Outlook for M&A

 | Jun 25, 2016 | 4:00 PM EDT
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-- This article was written by Mariko Iwasaki  of The Deal

The U.K. voters' decision to leave the European Union is unlikely to have an immediate impact on the mergers and acquisition space in Europe, say lawyers who closely follow the market. Whether existing deals in the pipeline will come through remains to be seen.

"The M&A market in particular hates uncertainty," said Iain Wright, a partner with Morgan, Lewis & Bockius LLP. "What the 'leave' vote has done is just continued and probably intensified that uncertainty, because nobody knows what 'leave' means," adding that a Brexit vote does not automatically mean investment will shift from the U.K. to other European markets.

With the referendum behind us now, eyes will be on whether the deal makers will go ahead with planned deals that they they have postponed. Year to date, much of the U.K. deals had been put on hold until the referendum, deal makers have observed.

From Jan. 1 to June 8 2016, inbound U.K. M&A by value plunged nearly 69% year-on-year, from $151 billion to $46.8 billion, according to Dealogic. This compares with a 66% increase in Germany from $12.7 billion to $21.1 billion.

Views are mixed on what might happen to the deals already in the pipeline.

Richard Moulton, partner at Eversheds LLP, said there will likely be a pause in M&A deals that are already underway as acquirers and targets wait out uncertainty in the markets.

Meanwhile, Roger Baron, an M&A partner at law firm Linklaters LLP, said that he doesn't expect the pipeline of deals to dry up.

"I am aware of a number of deals that were in the planning stage that I suspect will still happen," Baron said. He added that people will likely take a pause to digest the news and its impact on markets but "I don't think it will change an existing process."

He was also optimistic about the M&A pipeline to come, he says that cross border acquirers are used to complexity and interacting with different sets of laws and regulators.

While the change in the legal framework will likely take two to three years, the deal makers probably won't be patient enough for that to make their decisions on where to place their money, another observer said.

"Market participants won't wait," said Peter Wand, a partner with Baker & McKenzie LLP in Frankfurt. "They want to be ahead of the curve."

Over the last few months, Wand has seen bankers come to Frankfurt for real estate options in anticipation for a "Brexit." In addition to the city, Frankfurt, Munich, and Luxembourg may become favored business destinations, he said.

However, whether funds will be lifted immediately from the U.K. remains to be seen.

"For inbound work, the U.K. has been one of the favored jurisdictions, partially to access the EU market," said Morgan, Lewis & Bockius' Wright. "At the moment, there is nothing to refer against as to whether the U.K. will remain a good place to make that investment. I think that's going to continue for a number of months at the very least. I would expect [there] to be continued slowdown in inbound work."

A Merrill Corp. survey of 600 corporate financial professionals from 35 countries conducted in conjunction with think tank The M&A Advisor showed that about 65% of respondents felt that a vote for "Brexit" would have negative long-term effect on M&A and high-yield markets.

"While the completion of the voting process will signal a return to business for some investors the activity levels will be well below last year's record year," said Merrill's Europe, Middle East and Africa managing director, Alun Baker.

-- Lisa Botter and Kate Norton contributed to this report

-- This article was originally published by The Deal, a sister publication of TheStreet that offers sophisticated insight and analysis on all types of deals, from inception to integration. Click here for a free trial.

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