Corporate activity in a post-Brexit world: Mergers and Acquisitions
As at the time of writing (June 29th) it's been a tumultuous weekend. Britain (or at least 17 million people) voted to leave the European Union, David Cameron tendered his resignation, and Nicola Sturgeon said Scotland would try (again) to leave the United Kingdom. So what effect does all of this political activity have on the grass roots? On the unlisted small and medium-sized businesses (SMEs) that operate in the United Kingdom but also perhaps trade with the other 27 European Union States, or even further afield?
Business generally functions at its best in periods of relative stability. There is talk, on international media outlets such as Bloomberg, of a slowdown in international mergers and acquisitions (M&A) activity as a direct result of the uncertain playing field on which we suddenly find ourselves, which regrettably, after Iceland, is not one of the venues used by the French for Euro 2016. So the United Kingdom, or rather, England and Wales, has sneezed, and the world, apparently, has caught a cold.
Markets tend to overreact in the days of uncertainty following an unpredicted political event, and they will stabilise at some point. It is just very difficult to say when that point will be.
Growing a business, increasing profitability and value, are goals shared by most, if not all, SMEs. Organic growth is one option, increasing the number of customers, lowering costs, increasing productivity and leveraging intellectual property to build a brand to differentiate your business from competitors and take a bigger market share.
Another option is to buy another business that, when put together with yours, leapfrogs you above many competitors. The trick is in identifying your target (typically a private or public limited company not listed on a stock exchange), negotiating with that target, and finding the money to acquire it.
Alternatively, rather than buy a business, you might choose to pool resources and merge with another business, or to set up a joint venture to pursue common goals. You may not have to find any purchase money, however you may need to perform the same sort of integration exercise as you would carry out if you were buying that business.
Identifying your strategy and sticking to it will help you in your tactics when it comes to buying or merging with another business. You will want to perform due diligence on your target, and to ensure that the documentation produced by you and your lawyers protects both businesses before and after the proposed transaction.
Yes, we are in a period of uncertainty. Yes, there will be winners and losers. Battens is one of the oldest law firms in the country. We've never seen a Brexit before, but we have been around to witness the fallout from the French Revolution and were advising clients when the King of England conversed only in German.
In a post-Brexit world, deals will continue to be made, businesses will merge and be bought and sold. Money will be made and lost, but the wheels of economic activity will keep turning. Keep calm and carry on.
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