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The UK Government’s now-infamous “mini-budget” on 23 September 2022, followed by the series of Government u-turns and political turmoil and culminating in Kwasi Kwarteng being sacked as Chancellor of the Exchequer, has resulted in a severe shock to the UK economy and coincided with significant turbulence to the value of the pound.
Whilst there has been some recovery from the record low of 1.03 following the mini-Budget announcement, the GBP remains markedly low in value. On the back of recent events, there remains an element of unpredictability and instability.
Overseas investment
In terms of the UK M&A market, these events have sparked concerns as to the stability of the market and predictions as to a drop-off in deal activity. However, the plummeting value of the pound may nonetheless also bring about favourable conditions for overseas investors who are looking to capitalise on the situation.
In particular, the performance of the pound against the dollar is expected to attract particularly strong interest in UK businesses from US investors, who now perceive that the UK is offering attractive investment opportunities and value for money. The Financial Teams recently reported that US private markets giant Ares Management commented that “everything in the UK is on sale”, noting that there is a wide expectation that US investors will look to take advantage of the weak currency.
Price expectations and transaction negotiations
Compounded by rising energy costs, supply chain issues, rising labour and raw material costs, and general market uncertainty, the current economic climate may also cause sellers’ price expectations to drop and buyers’ views on value to widen.
From the context of UK business owners who may be considering an exit, caution should be taken when negotiating the terms of any transaction with overseas buyers, and it is crucial that advice is taken at an early stage. The jurisdictional differences between the parties are significant and should be kept at the forefront of all cross-border M&A.
English law
In particular, English law deals have many market conventions and norms which offer sellers a certain level of protection which is not always afforded in other jurisdictions. It is very common in US transactions, for example, that buyers will insist on wide indemnity coverage, which is typically considered a very onerous seller risk on an English deal.
UK business owners should therefore need to remain alive to these types of issues as the prospects of a possible increase in overseas buyer interest increase.
Our team of specialist Corporate Solicitors provide advice to a broad range of clients, including PLCs, SMEs, owner-managed businesses, management teams, private equity investors and serial entrepreneurs on all aspects of M&A.