Brexit hits UK mergers

Theresa May is hoping to increase the Tory majority after the General ElectionTheresa May is hoping to increase the Tory majority after the General Election
Theresa May is hoping to increase the Tory majority after the General Election
Uncertainty caused by t'‹he Brexit referendum has resulted in a significant drop in UK mergers and acquisitions, according to researchers at the University of East Anglia.

In the 11 months before last June’s referendum, the​re was an average of 430 ​M&A announcements ​a month.

Almost a year on from the historic vote, the study’s preliminary findings estimate that M&A activity fell by 15 per cent - or by 60 mergers a month - as a direct result of the referendum uncertainty.

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​The university said M&A activity has failed to recover to its pre-referendum level.

​It said the findings​ are at odds with initial reports that the ​“​Leave​“​ vote had not reduced the level of business confidence​. The research comes​ as UK political parties make their final push for votes ahead of ​Thursday’s General Election with the Brexit negotiations a key issue in their campaigns.

The researchers ​said the 15 per cent fall is a sizeable setback in terms of consumers benefiting from efficiencies that most M&A activity produces.

For example, consumers will not reap the benefits of lower prices and higher quality goods or services that could have otherwise been delivered by these mergers.

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​The research, which is ongoing, was led by Dr Peter Ormosi of UEA’s Norwich Business School and Centre for Competition Policy (CCP).

Dr Ormosi, a senior lecturer in competition economics, said: “While it is widely recognised that last year’s EU referendum caused significant uncertainty for markets, some early indications were that it had not reduced the level of business confidence.

“We find that the referendum has in fact led to a significant drop in merger numbers. This is bad news. The vast majority of mergers, unless they have a significant adverse effect on competition, have the potential to contribute to social welfare, for example by reducing transaction costs, or by enhancing the efficiency of the merging businesses.”

He said that if competition is left undisturbed, these benefits are passed on to consumers in the form of lower prices.

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“When there is a setback in M&A activity, it means that some of these potential benefits are foregone,” he said.

“These preliminary findings also suggest that the post-referendum policy uncertainty is helping the largest M&A transactions, while hindering the smaller ones, with possible negative consequences.”

While the overall levels of deals has fallen since the Brexit vote, the bigger deals are showing an increase in value terms​

In the 11 months following the referendum, the value of the largest 10 per cent of M&As increased in relative terms - from ​£166m before to ​£194​m after - an increase of more than 16 per cent​.

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The researchers said this means the very largest mergers are now even bigger​ ​and might be ​due to the largest firms being cushioned from the increased uncertainty of Brexit​.

They said this could be ​due to their ability to exert influence over politicians.

Dr Ormosi said: “When we find that the largest transactions and the largest businesses were not hindered, and in some cases were even spurred, by the referendum, one inevitably worries. How much of this differential effect is due to the fact that these larger businesses are cushioned from the increased uncertainty, thanks to their rent-seeking behaviour?

“Transitional periods are never good for businesses and consumers, but what makes it even worse, is that businesses do not seem to be equally exposed to the same risk from the increased policy uncertainty, and those that are more likely to have political influence seem more protected from these risks.”

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