How will Brexit Affect my Cross-Border Deal?

If you’re planning to merge with a U.K.-based company, that country’s June 2016 vote to exit the European Union (Brexit) could affect your transaction. Indeed, the long-term ramifications of that decision may make you want to think twice about your proposed merger.

Right now, however, most of the business community is waiting to see how the political process plays out. Britain is scheduled to leave the European Union in the spring of 2019, but it’s possible that it won’t leave until the early 2020s, and there are indications the transition may take even longer.

Period of Uncertainty

Here’s another wrinkle: Even if Britain leaves the European Union, it may not leave the internal market — the free trade area that includes such non-EU countries as Norway. In fact, most experts believe that the United Kingdom will negotiate to stay in that market, which would minimize the impact on cross-border deals between U.K. companies and other EU-market countries.

Even so, any deal involving a U.K. company now must contend with an extra element of uncertainty. If your proposed deal is part of a strategy to gain access to the EU internal market, Brexit may throw a wrench into your plans.

Longer-Term Changes

Assuming that Brexit comes to pass, potential long-term effects include:

• Greater protectionism – Britain might adopt a more vigorous antitrust regime that would step up government intervention in many sectors. This could make it more likely that the government would block foreign purchases of U.K. businesses.
• Enhanced regulations – Currently, notifying the country’s Competition and Markets Authority (CMA) of an intended merger is voluntary (though it’s generally in a company’s best interest to file). Post-Brexit, that notification — and possibly other formalities — could become mandatory.
• More paperwork – If your acquired company has revenues from both EU and U.K. markets, you may have to report to both the European Commission and the CMA in the future. Previously, one filing sufficed.

New Strategies

Post-Brexit, a merger with a U.K. company could take more time and trouble than you originally anticipated. And there are still plenty of unknowns. For example, will a trade war break out between Britain and the European Union? Could Brexit cause an economic downturn throughout Europe?

Forecasting such events is difficult. So if your company’s intention is to secure a foothold in the European Union, you may want to consider merging with a company in a country that still belongs.

© 2017