One of the many lessons of the Brexit vote, according to some
media commentators, is that confirmation bias is the new normal in
The rationale is that on either sides of a debate, people stay
committed to their beliefs and opinions, hearing only the
statistics or facts that support those views. Yet no matter whether
you were in the Remain or Leave camp, the positive news
stories of the past few weeks should give some confidence for
the UK's future: not only are economists pulling back on their
warnings of a near-term Brexit-induced collapse in growth, but UK
deal-making is having the best start to the a year since 2008.
While the strength of both consumer spending and the global
economy can explain the resilience of GDP growth, the ongoing
appetite for M&A amid such significant uncertainty seems more
surprising. With the UK heading out of the single market, there are
potential hurdles to the flow of much-needed skilled talent and an
ongoing lack of clarity over financial market regulations. Cahal
Dowds, Vice Chairman of Deloitte UK, and the head of our
US-UK deal monitor research, argues that such resilience in
acquisition appetite should not come as a surprise: interest rates
are at all-time lows, there are record levels of cash on company
balance sheets and stock market valuations are strong. There's
a wall of capital just waiting to be deployed.
Indeed, when we talk to US buyers about the balancing act of
taking advantage of strong M&A fundamentals versus the risk of
substantial political and marketplace uncertainties, we hear the
same message again and again: US companies place great value on the
closeness of our two nations:, the similar business culture, the
same language, aligned governance processes, and they place great
weight behind the clarity and strength of our legal system. More
than this, they see the UK as a source of innovation and skills
with an environment that encourages entrepreneurship.
It seems, therefore, that in a time of uncertainty, US buyers
are turning to those markets and the cultures that they understand
and trust. Indeed, our research shows the marked difference in
scale of investment across the most active bilateral deal
corridors. From the first quarter of 2015 to the final quarter of
2016, North America outbound deals to the UK hit 960 transactions,
compared to just 350 and 279 outbound to Germany and France,
respectively. This clearly shows that businesses in the US are
looking beyond the political uncertainty and worries about mobility
of talent, to focus on the long-term benefits of investing in a
country they see as the bridge to the rest of Europe and to the
globalised world. In their eyes, a great company before Brexit will
still be a great company after Brexit. Of course, the cheaper
currency definitely helps makes the maths work but, as Cahal points
out, corporates aren't making game-changing decisions based on
short term currency fluctuations.
Confirmation bias means ignoring any information that detracts
from your argument. I can't talk about the US-UK deal corridor
without noting 20 per cent fall in UK outbound deals to North
America in the second half of 2016. UK businesses have been
understandably hesitant to make major investments until they have a
better understanding of what Brexit will mean for their
organisations. Yet given that we're still in a climate of low
economic growth (no matter what the near-term revisions in GDP
forecasts are) M&A is now an imperative. It is the one way for
UK companies to secure growth and grab market share. Standing
still, while prudent in times of change, may mean UK corporates are
playing catch up in the years ahead. Theresa May's Brexit
speech in Davos has given some early signals of how the government
will approach negotiations with her European counterparts, and
business look forward to further clarity. Anything that aids
recovery in boardroom confidence and risk appetite will play a
critical role in reigniting UK outbound investment across the
globe, supporting economic growth in the crucial years ahead.
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