Acquiring a UK Company: The Brexit Effect

Irish acquirers tell John Stanley that Brexit is more an ‘inconvenience’ than an impediment to deals.

Brexit has dominated Irish/ British business affairs since the result of the UK referendum was announced last June. But despite this, there’s a strong consensus amongst Irish acquirers of UK businesses, and their advisers, that Brexit is more of an inconvenience right now than a serious impediment to doing deals.

Claire McCracken, corporate partner at Lindsays Solicitors in Glasgow says there is a strong historic trading relationship between Ireland and the UK and Brexit will not impact that in any huge way. “We had a similar issue in 2014 when there was a lot of talk about Scotland leaving the UK,” she says. “And more recently we’ve had expressions of concern about Scotland and Northern Ireland not wanting to leave the EU, with an initial panic about being forced to leave and the implications of that on inward investment. But in terms of M&A activity, we simply haven’t found that to be the case."

In the three or four months since the June vote, we’ve actually been involved in more M&A deals. We are seeing more companies marketed and more companies interested in acquiring. I think if there was going to be a downside we would have seen it by now.”

Brian Murphy, a Corporate Finance Partner with DC Corporate, points out that it is always possible to capitalise on periods of uncertainty. “In relation to Brexit, that uncertainty has been manifested in a lower international value of sterling. The near 20 percent reduction in the value of sterling at one point in late 2016 effectively meant that a Stg£5 million deal was costing Stg£1m less in euro terms. In a fairly standard deal, where 20 percent of the purchase price is equity, around 60 percent self-financing and 20 percent deferred, that represents a saving of the entire equity element.”

The sterling devaluation resulting from the Brexit vote is not a particular concern for Trilogy Technology, says CEO Edel Creely. “I’d be more concerned about the general uncertainty it has created. But having a UK presence should help us get around any potential issues that may yet arise about where data is held, which is always an important issue in the IT market,” she says.

We’re hearing a message very clearly from the UK that there is a lack of confidence, and there may be a reduction in spend in organisations. However, we’re also hearing about companies looking to improve their productivity and do more with less, for which IT is an essential ingredient, and I would be confident that these will increasingly look to companies like ours for these solutions.”

Alan Bruce, MD of Cork-based Anderco, regards Brexit as “a whole lot of bother”.

The big question for us is sustainability of revenue. The smaller UK company we’re buying has a big client in the home renovations sector, which may well be affected by the expected drop in GDP in the UK.” But Bruce is also optimistic. “For us, there’s a huge market there, even if it is difficult for a period. We may have to work harder, but it’s like a competition in which the fitter team will win.”