How has leaving the EU Single Market shaped the UK’s M&A scene? What part does government action play in today’s economic plans?
Brexit led many to expect a decline in UK mergers due to new challenges. For a while, this seemed likely as M&A activities dropped. Yet, the expected big slowdown in deals didn’t happen. After the EU-UK Withdrawal Agreement in 2018 and the pound’s fall, US investors started investing more. This kept M&A activities going in 2019.
The EY Europe Attractiveness Survey 2021 shows Brexit worries lessened for investors, supporting a strong M&A setting. The loss of “one-stop-shop” antitrust clearance has caused some delays. Now, deals need approval from both the European Commission and the UK’s Competition and Markets Authority (CMA).
The UK’s merger rules aim to stop deals that could hurt competition, saving over £2 billion recently. The CMA checks international deals to protect UK consumers and firms. This ensures clear rules and support for those involved. Such efforts show the UK’s commitment to adapting post-Breaking fostering a thriving financial market.
Introduction to Government Policies Affecting UK M&A
The UK government is paying more attention to business acquisitions. It’s becoming stricter in supervising these deals. The Enterprise Act 2002 started this by allowing the government to look into deals affecting national interest.
New rules mean the government can now check more mergers, especially in important areas like military and technology. This has made the UK’s control over mergers in certain sectors stronger.
The UK’s Competition and Markets Authority (CMA) keeps a close eye on big deals. For instance, on 26 April, it stopped Microsoft’s huge purchase of Activision. In another case, it fined Meta £50.5 million over a deal with Giphy. These actions show the UK’s strict rules on mergers.
The scene for mergers and acquisitions in the UK changed a lot by 2021. There were 2,298 deals, a huge jump from 2015. Foreign companies buying UK businesses increased a lot between 2015 and 2022. UK firms buying abroad also grew, with 2016 seeing a big rise in deal value.
In 2021, foreign deals in the UK went up a lot. US companies were particularly busy, dominating the scene. They made many acquisitions, which was a big part of all foreign investments in the UK.
Big deals like Clayton, Dubilier & Rice’s acquisition of Morrisons show private finance’s role in the UK. After Brexit, US companies spent more on UK mergers than EU ones. This shows the UK’s strong investment scene and the effects of its policies.
Brexit and Its Effect on M&A Activity
Ever since the UK voted to leave the EU, there’s been lots of talk about its effects on business. Especially, on the M&A, or mergers and acquisitions, scene. A striking 70% drop in UK M&A deals just before the vote, compared to 2015, was a major worry. However, the real impact of Brexit turned out to be complex and not as severe as many feared.
Initial market uncertainty made people hesitant to make big moves. But things started to look up with agreements between the EU and the UK. The drop in the value of the pound made the UK a magnet for investment, particularly from the US. This is shown by US investment in the UK jumping from US$747.43bn in 2016 to US$890.09bn by 2020.
Yet, the UK slipped behind France as a top European destination for overseas investment in 2019. Despite this, the UK has shown resilience through significant deals. For example, Advent’s GBP 4.1 billion buy-out of Cobham plc in 2020. And CK Asset Holdings from Hong Kong buying Greene King for GBP 2.7 billion in 2019 shows ongoing activity.
Changes in financial laws post-Brexit have made regulation tougher. For instance, the National Security and Investment Act 2021 now requires certain deals to be reported since January 2022. Also, the Competition and Markets Authority (CMA) is busier, with up to 78% more merger reviews.
Investment trends took a turn with UK firms being bought by foreign companies a lot more in the second half of 2021. This outpaced the total for the last five years combined. Such trends show the UK market remains appealing, despite uncertainty and changing investment flows.
Regulatory Challenges Following Brexit
The UK leaving the EU has created new hurdles for business deals. Now, companies must get approval from both the UK’s Competition and Markets Authority (CMA) and the European Commission. This need for dual approval is a change from the simpler process before Brexit and means more work.
In June 2016, the number of deals involving UK companies dropped by nearly 70% compared to 2015. Yet, this dip didn’t last forever. Only a few transaction agreements mentioned Brexit as a reason to back out, showing that the Brexit impact was less on deal terms than expected.
US investments in the UK stayed strong, with 389 projects in the latest year. Even though France led Europe in new investments in 2019, the UK still saw growth. US investment in the UK jumped from $747.43 billion to $890.09 billion from 2016 to 2020.
After Brexit, the CMA’s work increased by 60-78%, but it only reviewed 12 mergers with the EU in a year. This suggests more hurdles for businesses. The National Security and Investment Act 2021 creates more rules, requiring notifications for certain types of transactions.
The EU-UK Trade and Cooperation Agreement (TCA) aims for strong competition laws against unfair practices. But, companies must now file deal paperwork in both the UK and EU, showing the ongoing complexity in international trade laws.
Changes in UK Merger Control Framework
The National Security and Investment Act 2021 (NSIA) began a new era in UK merger control. It introduced key changes, focusing on national security. This Act makes it a must to notify the authorities about important sector mergers.
In the financial year 2022 to 2023, the Competition and Markets Authority (CMA) looked at close to 700 merger cases. Of these, 43 went to Phase 1 investigations and 13 to more thorough Phase 2. Three mergers were stopped to keep the market competitive.
This work is part of a global effort with teams like the European Commission and the DOJ. They work together on worldwide mergers.
In the UK, the merger control system has saved consumers more than £2 billion over three years. This shows the big impact of the CMA’s work. The share of supply test also applies not just to UK companies but to any merger affecting the UK market.
To make things smoother, the Mergers Intelligence Committee (MIC) reviews about 13 cases each year. They’re also thinking of making the UK turnover threshold £100 million instead of £70 million. Plus, there’s a plan for a ‘safe harbour’ for deals with a UK turnover under £10 million. These steps aim to reduce anti-competitive actions and support positive acquisitions.
UK’s Position in Global M&A Activity
The UK still shines in global M&A despite Brexit. Its draw comes mainly from ongoing international funds, with the US leading. In 2023, the value of M&A deals entering the UK fell to £109 billion from £191 billion the year before. Yet, deal numbers stayed almost the same, with 2,634 in 2023 versus 2,739 in 2022, showing the UK’s continuous allure for investments.
More than half of the UK’s deals in 2023 were to take companies private, an increase from the previous year. This signifies a market trend towards private possession. Meanwhile, public buyouts are still governed by the City Code on Takeovers and Mergers, providing a set of rules for these deals.
Legal firm Latham & Watkins handled major M&A transactions in 2023, like Abcam’s buyout by Danaher Corporation for about $5.7 billion. But, getting long-term financing at good rates has become tougher, affecting private equity and venture capital firm’s investment decisions.
Shareholders are more influential on deal designs, with US investors leading public challenges. Laws like the National Security and Investment Act 2021 and the 2023 Foreign Subsidies Regulation have updated the M&A scene, focusing on the appropriateness of buyers and the market.
The Financial Conduct Authority is updating the UK’s stock market rules by combining different listing categories. In this landscape, the Energy, Utilities, and Resources sectors saw the highest M& Independence Day deal activity with £18.2bn, even though the total value of deals dropped by 24% in 2023.
While UK M&A deals dipped to 3,628 in 2023, down by 17%, the country remains a top spot for global investors. Supported by a solid legal system, centres of innovation, and a favourable financial market approach, the UK keeps its lead in the worldwide M&A game. Changes in regulation and strategy adjustments will be key to its ongoing success amid both challenges and opportunities.
Key Legal Developments in UK M&A Policy
After Brexit, the UK updated its M&A policy in big ways, showing its efforts to modernise. The National Security and Investment Act 2021 (NSIA) came into force, focusing on national security in foreign investments. It now requires in-depth checks for investments in certain areas, ensuring national interests are protected.
The UK Takeover Code, the UK Takeover Panel, and the Companies Act 2006 are crucial in M&A regulation. The Financial Conduct Authority (FCA) watches over these rules. The Competition and Markets Authority (CMA) also plays a big role, dealing with competition cases. Together, they make sure companies follow the rules, keeping the market fair.
Foreign investors find the NSIA challenging as it introduces tighter controls over national security risks. This change shows the UK’s legal system is adjusting to new economic realities. It means higher hurdles for foreign deals now.
New rules also affect specific sectors like media and banking. The government can step in to protect public interests. The UK Takeover Panel enforces these rules strictly, using sanctions if necessary.
When it comes to making deals, the UK prefers contractual offers or schemes of arrangement for easier takeovers. Deals usually take two to three months to complete because of these rules.
The Takeover Code has been evolving since 1968, reflecting the UK’s effort to update its M&A policies. This shows the UK’s commitment to a competitive, secure economy. This continuous change aims to match current market demands.
UK M&A Policy Impact on Strategic Decisions
Business strategies in the UK’s M&A world are more important than ever. The National Security and Investment Act (NSIA) and tighter rules highlight the UK’s influence on mergers. Company directors in England must also think about ESG matters due to the Companies Act 2006.
In 2020, assets worth over $1 trillion were managed with ESG principles in mind. Laws like the Modern Slavery Act 2015 and the Bribery Act 2010 set social and ethical standards. Following these laws boosts a company’s reputation and avoids charges of dishonesty. This makes it crucial for owners and investors to do detailed checks when merging.
The European Green Deal aims for the EU to be climate neutral by 2050. It brings in rules like the Sustainable Finance Disclosure Regulation (SFDR). UK companies must follow stricter ESG rules to compete. Targets with strong ESG can lead to better exit values and lower costs. Hence, focusing on ESG has become thrice as important since 2016.
Expanded ESG checks now cover contract reviews and thorough property examinations. Training programs are also vital. The Competition and Markets Authority (CMA) is adjusting to new challenges, offering ways to resolve jurisdictional questions. The CMA has saved consumers over £2 billion in three years.
Deals involving non-UK companies can greatly affect the UK market. Merger talks now require a deep understanding of regulatory shifts. Navigating this complex scene calls for smart decision-making.
Notable M&A Transactions Post-Brexit
After Brexit, the UK saw major M&A deals, proving it’s still a top spot for investment. The GBP 37 billion Comcast purchase of Sky plc in 2018 was a big deal. It showed trust in the UK’s economy during uncertain times. The US company Advent’s GBP 4.1 billion buyout of Cobham plc in 2020 also kept investments flowing.
CK Asset Holdings from Hong Kong bought Greene King for GBP 2.7 billion in 2019. This move showed the UK is attractive to global investors. But, some big deals, like the GBP 2.9 billion bid for Intu Properties, fell through. Challenges after Brexit and uncertain economic conditions caused these failures.
The Trade and Cooperation Agreement (TCA) has actually increased M&A activity in the UK. Deals are coming from the Americas and Asia Pacific. The UK is updating its laws to face new post-Brexit challenges and grab opportunities.
In London, public company takeovers are going strong. Many are now selling parts of their business to private owners. UK firms are also investing in EU operations, adjusting to new laws. This is especially true for fintech, insurance, and funds management sectors.
Comparative Analysis: UK vs EU M&A Policies
After Brexit, the way the UK and EU handle mergers and acquisitions (M&A) has changed. There are notable differences in the rules regarding competition and approvals needed. For example, the UK uses the Significant Lessening of Competition (SLC) test. The EU, however, uses the Significant Impediment of Effective Competition (SIEC) test, combining elements from different evaluations.
In the EU, the European Commission’s strict checks for market dominance shape M&A impacts. Since Brexit, companies are facing more complications when merging across borders. An example is Unilever/Sara Lee, where different areas demanded different actions.
Insurance for guarantees and warranties also varies, being cheaper in the UK than in the US. US policies typically offer broader coverage with fewer exceptions. These variations add layers of complexity for UK deals post-Brexit.
Brexit removed the streamlined EU Merger Regulation process, causing delays. The UK’s Competition and Markets Authority (CMA) takes 120 working days for investigations, longer than the European Commission’s 90 days. This change increases challenges, costs, and uncertainty for companies active in both the EU and UK.
There’s also a difference in who checks for potential issues during due diligence. In the US, sellers do this work. In the UK, it’s up to the buyers. This affects how mergers and acquisitions are planned and carried out, making it crucial to carefully analyse rules in both regions.
The Future of UK M&A Regulation
The UK M&A regulation landscape is about to change a lot. It’s moving towards strict government control. A new Act focuses on ‘killer acquisitions’ of young companies. It removes the need for merging parties in the UK to have overlapping activities if one has a big market share and turnover.
This change will not affect smaller deals as much, making things easier for them. Penalties for not providing requested information have increased. Companies can now face fines up to 1% of their worldwide turnover per year, plus daily fines.
Companies have the new option to ask for a quick Phase 1 review. This makes the first steps of checks faster. Also, the law now stops anticompetitive agreements outside the UK too. This gives the Competition and Markets Authority (CMA) more power to investigate.
The CMA’s power has grown. It can now do interviews from anywhere and demands that investigated parties save evidence. Deal numbers have dropped by 18% in 2023 compared to 2022. The total value of deals also went down, from £269bn in 2021 to £83bn in 2023. Private equity, however, is still strong, making up 42% of deals by volume and 55% by value.
Regulations now predict more equity investments and green financing. There will also be more deals where buyers only get a part of the company. The market is adapting to high costs for borrowing. But with buyers and sellers wanting similar things, there could be good chances for those ready for these changes.
Conclusion
The UK M&A market remains strong, facing both challenges and opportunities. Strategic resilience and legal agility are key to success here. With the Bank of England keeping interest rates at 5.25%, there’s a stable ground for deals. This encourages buyers, making the market favourable for M&A ventures.
Talk of a possible increase in Capital Gains Tax is pushing British business owners to sell early. They want to avoid higher taxes. At the same time, disagreements over price have made some deals fall through. To solve this, sellers are now turning to flexible deal strategies. They’re using earn-outs, escrow accounts, and more to meet buyers halfway.
The market is seen as one where buyers have the upper hand. They’re getting creative to agree on good purchase prices. With more quality businesses for sale, it’s a busy time. Also, the upcoming general election brings uncertainty, especially about tax policy. This is making businesses think hard about selling now. All these points highlight how strategic moves and policy outcomes will shape UK M&A’s future.
