By Myles Hamilton – Shaw & Co
One of the most immediate economic impacts of world events on M&A activity is on foreign exchange rates.
The result of the Brexit referendum has resulted in a significant fall in the value of the pound relative to the US Dollar and Euro. For many years UK companies have been attractive acquisition targets for international buyers and this drop in the value of the pound effectively made UK companies ‘cheaper’.
This more than offset the risks presented by Brexit and if a deal with the EU is announced in the coming weeks, we may see this effect start to reverse itself. However a no deal outcome is likely to exacerbate it.
The US election did lead to some FX volatility with the dollar considered a good investment in times of uncertainty, something which is in abundance at the moment. However there has not been a large shift in the USD to GBP rate compared to this time last year – it was at 1.29 in November 2019 compared to 1.32 recently and in terms of future trade arrangements all eyes are on a trade deal with the EU.
That said there has also been discussion of Joe Biden’s relationship with the UK with some commentators that are closer to the situation suggesting a trade deal with the US may now be harder to come by. This should not however have an immediate impact on transatlantic M&A activity.