Finance

The Brexit takeover

Like a Hollywood blockbuster, Brexit has provided plenty of drama in the world of M&A. Within weeks of the UK’s vote to leave the EU last June some big deals were pushed through, as buyers took advantage of the sudden fall in the value of sterling by up to 20 per cent.

China’s wealthiest man Wang Jianlin spotted a movie business bargain as his AMC Entertainment Holdings group snapped up the Odeon cinema chain for £921million to create the world’s biggest cinema group.

Data sharing is the cornerstone of open banking. Owing to the scale of the organisations involved, the rather simple question about its remit has a multi-layered answer. Technical, legal, governance and data validation are all responsible for bringing effective data sharing together.

Banks have to look into their own IT architecture and software to cater to the technical layer: how data sharing will actually take place – the cogs and wheels of the setup.

Validating information is another crucial component. If the banking industry opens up, open banking will have to be run so that banks and service providers are not faced with thousands of rules and regulations to do business.

And of course there is the question of governance too. Opening up systems means testing on loop. The test functionalities should be adequate for third parties to create and run and to make sure the system works as it is supposed to. Sound governance is absolutely key to the role – to operate decent change management.

Finally, legal forms the last of the layers that make up the core of open banking.

Other notable transactions within weeks of the EU Referendum included the sale of Poundland to South Africa’s Steinhoff for £597million and ARM Holdings purchase by Japan’s Softbank for £24billion.Head of retail and leisure UK corporate banking at HSBC, James Sawley, says investors’ appetite to “buy British” had not been curbed by Brexit.

“Last year more than £100billion of acquisitions involved overseas buyers of British firms,” he says. “The availability of cheap capital has fuelled acquisitions, with the Steinhoff purchase of Poundland a clear example. This offsets uncertainty and gives investors sufficient confidence to plough ahead.”

The report by professional services firm Deloitte, Plotting a New Course: The Impact of Brexit on M&A Activity, does cite a slight slowdown in M&A activity on larger deals but confirms that the mid-market (£250million to £1billion) has remained strong.

Most deals are negotiated for strategic reasons and to add capability to existing UK operations, but in such an uncertain environment contracts can take longer to sign.

“The lasting effect of Brexit on M&A activity is finely balanced and much of it will depend on the outcome of the current negotiations.” – Nick Harrisingh, Trowers & Hamlins

Andrew Pinder, head of investment banking at Investec, which specialises in mid-market deals, says there is also an enthusiasm among UK corporates to transact overseas even though these deals are more expensive.

“There is access to money and companies need to remain internationally relevant after Brexit, especially if they see their competitors doing deals,” he says.

Nick Harrisingh, a partner at law firm Trowers & Hamlins, agrees that outbound M&A has increased. He quotes major deals such as Reckitt Benckiser bidding £13billion for US baby formula maker Mead Johnson Nutrition. Another notable piece of business since the Brexit vote is Tesco’s ongoing takeover of wholesaler Booker for £3.7billion.

But he remains cautious. “Headline deals are still happening but the key to an active M&A market is the volume of transactions. For every success story there are countless transactions that have stalled or been aborted,” says Harrisingh. “The lasting effect of Brexit on M&A activity is finely balanced and much of it will depend on the outcome of the current negotiations.”

This article was published in our Business Reporter Online: Growing pains.
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