The Brexit effect: one month on

22 July 2016

We’re a full month on from the UK’s marginal Brexit decision and the governor of the Bank of England (BofE), Mark Carney, has announced that it’s ‘business as usual’, with no indication of a near-term slump in the economy.

The BofE’s Agents’ Summary of Business Conditions report, which summarises the views of around 700 UK businesses, gave a more promising outlook on current conditions than many had anticipated one month ago. Indications are that investment intentions remain largely unchanged and actually showed modest growth over the last month. Whilst there were some delays in decision making on transaction activity leading up to the referendum, it seems deals are once again starting to pick-up.

On the lend side, companies are also reporting that the banks are still open for business, with credit availability also improving across all business sizes – although it seems the business’ demand for that credit is still somewhat subdued.

This consensus of UK business opinion is also supported by market activity which has seen the FTSE 100 at an 11 month high and the pound creeping up again against the dollar.

We asked a few of our corporate finance experts across the UK if they were seeing a similar pattern with clients’ intentions to start doing business again. Here’s what they had to say:

Andrew Millington, corporate finance partner, London office

“It’s been a bit of mixed picture in London. Clients are seeing a marked change with contracts awarded and business quickly picking up. Many are just getting on with life, taking the ‘business as usual’ approach suggested by Carney, as no one really knows yet how the future is likely to pan out.

Other clients are certainly seeing business in a hold pattern and are welcoming an early arrival of the summer break whilst they take stock and just see for now what, if anything, will happen.”

James Price, corporate finance partner, UHY’s East offices

“It’s still too early to call at this stage but we haven’t noticed any marked change in activity.

One interesting local deal that’s been attracting attention is the $32 billion sale of the UK’s largest technology company, ARM Holdings, to the Japanese electronics giant, Softbank. While the UK government are holding it out as a marker of the UK’s position as a leading industrial powerhouse, the likelihood is that the motivation for Softbank was at least in part the 30% fall in the value of Sterling against the Yen. It will be interesting to see if other UK tech companies become prime takeover targets for Asian and US companies in the coming months.”

David Kendrick, corporate finance partner and automotive specialist, Manchester office

“Immediately after the vote was announced there was huge uncertainty and the knee-jerk reaction from the majority of businesses considering transactions was to hit the brakes. After a couple of weeks, however, things have settled down and the market appears to have gained a little more stability, with all of the transactions we’re involved with now moving forward. Of all our current deals, we’re only aware of one price adjustment due to the Brexit scenario, but this was an exception rather than the norm. Strong businesses will remain strong and continue to look for new opportunities, and good businesses will remain attractive to buyers also.

One thing that we have noticed since the Brexit vote is increased interest from overseas investors in the UK automotive market, which is interesting; most likely a result of the flagging strength of the pound.

Let’s hope this current stability continues and the corporate finance market isn’t hugely affected in what was a very buoyant and exciting market prior to the referendum.”

Should you have any questions about this blog, please get in touch with one of our corporate finance at your local UHY office or complete our online contact form.