Impact of Brexit on M&A
Many market commentators and economists have predicted that a hard Brexit could lead to a recession in the UK, which could affect other parts of Europe in a contagion like reduction in growth across the region. Any significant economic slowdown will likely impact investor confidence more widely, which may result in a reduction in corporates undertaking M&A activity. On the other hand, this may give rise to greater opportunities for financial buyers where there is less buy side competition for assets. It could also lead to companies using Brexit as a catalyst for defensive acquisitions to mitigate regulatory and supply chain risks.
On transactions where the target has UK operations, buyer’s should be undertaking thorough due diligence on the target’s Brexit contingency planning and, where appropriate, specific Brexit related warranty cover should be included in the relevant transaction documents. It is also worth considering if any form of indemnity protection or material adverse change condition should be included. Moreover, where the acquisition is being partly funded by a third party lender, buyer’s will need to consider the impact a no deal Brexit may have on the availability (and terms) of such finance.