M&A in London: the effects of Brexit

M&A in London: the effects of Brexit

London, Europe's historic M&A hub

London has long been the nerve center for financial transactions and mergers & acquisitions in Europe, thanks to the city's many business districts:

- a stable legal framework (common law)

- great depth in financial services

- a relatively attractive tax system

- a gateway position between North American and European markets

2016-2021 the immediate effects of Brexit

- Regulatory uncertainty: Companies have suspended or delayed cross-border deals due to legal uncertainty (loss of financial passport, regulatory alignment).

- Decline in M&A volume: Between 2016 and 2019, there will be a decline in inbound transactions, particularly from European companies.

- Geographic repositioning: Several major financial institutions have moved their European headquarters from London to Paris, Frankfurt or Dublin to maintain direct access to the single market.

After 2021: structural effects

- Higher cost of cross-border deals: Customs and regulatory barriers make mergers between UK and European companies more complex.

- Renationalization of M&A strategies: There has been a resurgence of domestic deals in the UK, and fewer intra-European deals.

- Growing role of North American funds: London remains an attractive platform for US funds looking to make acquisitions in the UK (especially thanks to the weak pound post-Brexit).

The London market adapts quickly

- Alignment with Anglo-Saxon law: London capitalizes more on its proximity to the United States, Asia and emerging markets.

- Regulatory innovation: The Financial Conduct Authority (FCA) has launched reforms to make IPOs and M&A more attractive, with a view to differentiating itself from the EU.

The Brexit has certainly complicated cross-border M&A between London and the European Union, but London remains a strategic location

The UK M&A market has thus evolved towards a less European, more globalized model, with an increased focus on regulatory sovereignty.

Decline in London IPOs

Several companies have chosen to move their main listings out of London, preferring markets offering better liquidity and more attractive valuations.

- Wise: The British fintech has announced plans to transfer its primary listing to New York, while maintaining a secondary listing in London. This decision is intended to improve the liquidity of its shares and attract more American investors.

- Cobalt Holdings: this metals company has cancelled its planned IPO in London, estimated at $230 million, due to insufficient demand from investors.

These movements reflect a broader trend of companies seeking more dynamic stock markets, particularly in the USA.

Resumption of mega-transactions in 2024-2025

Despite the challenges, the UK M&A market has seen a notable recovery, with a significant increase in transaction values.

- International Paper & DS Smith: The American group acquired the British packaging manufacturer for $7.2 billion, outbidding Mondi.

- Nationwide & Virgin Money UK: The building society has acquired Virgin Money for £2.9 billion, consolidating its position in the UK banking market.

- Carlsberg & Britvic: The Danish brewer has acquired the British drinks manufacturer for $4.1 billion, strengthening its presence in the soft drinks market.

These transactions illustrate investors' renewed confidence in the UK market, despite Brexit-related uncertainties.

Investment flows

Brexit has changed the dynamics of foreign investment in the UK.

- Inward investment: In 2024, inward investment in UK companies increased by 21%, with a predominance of US investors, who accounted for almost 50% of the total value of transactions.

- Outbound investment: Conversely, UK acquisitions abroad fell, reaching their lowest level since 2013, due to economic uncertainties and currency fluctuations.

This reorientation of investment flows underlines a trend towards domestic consolidation and caution in international expansion.

Regulatory reforms and outlook

The UK has undertaken reforms to enhance the attractiveness of its post-Brexit financial market.

- FCA reforms: The Financial Conduct Authority has introduced changes to facilitate IPOs and attract more companies to the London market.

- Increasing competition: Despite these efforts, London faces growing competition from other financial centers, notably New York, Amsterdam and Hong Kong.

The Brexit has led to significant adjustments in the London M&A market.

While some companies have chosen to look elsewhere, the UK continues to attract substantial investment, particularly in the financial, technology and consumer sectors.

Ongoing reforms and the resilience of the UK market point to continued adaptation to new global economic realities.

sources: Reuters.com, Financial time, Bcg, Chambers, Cijeurope

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