Bankers brace for M&A drought as Brexit vote hammers deal flow

Concerns over how investment banks will ride out a bad year for fee earnings

The $30 billion merger between the London Stock Exchange and Deutsche Boerse is now on a knife-edge, given the uncertainty surrounding London’s future trading deal with Europe

The $30 billion merger between the London Stock Exchange and Deutsche Boerse is now on a knife-edge, given the uncertainty surrounding London’s future trading deal with Europe

 

Some bankers advising companies on takeovers and initial public offerings (IPO) have all but written off big-ticket activity for the rest of 2016, after a British vote to leave the European Union poleaxed company valuations and executive confidence.

Pre-Brexit jitters had already taken a toll with mergers and acquisition (M&A) activity in Britain and Europe this year at its lowest as a proportion of global activity since records began in 1980, according to Thomson Reuters data.

But as predictions of a long investment hiatus gathered momentum, concerns about how investment banks would ride out one of the worst years for fee earnings in living memory were rife.

“All the Q3 deals pipeline is on hold and there is uncertainty for the last quarter,” said a London-based M&A banker who declined to be named.

“Volatility, sterling devaluation and political turmoil are the main issues. In this market you can’t negotiate anything and those who need to raise cash are in deep trouble,” he added.

DEAL-BREAKER

For those in the process of negotiating deals, Brexit brought more immediate worries.

The $30 billion merger between the London Stock Exchange and Deutsche Boerse is now on a knife-edge, given the uncertainty surrounding London’s future trading deal with Europe, sources familiar with the matter said.

The two exchanges said on Friday the outcome of the referendum did not affect their decision to merge.

“This is the most impacted of all deals. It doesn’t mean that it won’t go ahead, but there needs to be some re-thinking around the key terms,” said one source close to the LSE camp.

Other pending transactions like Anheuser-Busch InBev’s $100 billion-plus takeover of rival SABMiller may be reviewed in the wake of the Brexit vote, bankers said.

The value of M&A involving British companies has reached $57.6 billion so far this year, down 69 per cent on the same period last year, representing the slowest year-to-date period since 2013, the data shows.

Equity capital markets, which are down 40.8 per cent in Europe since January, are also set for a freeze in the wake of Brexit although Bidhi Bhoma, director of corporate finance at Shore Capital, said he was confident that activity could resume in September.

“There will still be cash inflows to fund managers, and they won’t be sitting on their hands because of Brexit,” Mr Bhoma said.

BARGAIN DEALS

A valuation plunge and difficulties in accessing funding may force some companies to consider delisting or a distressed sale, banking sources said, flagging opportunities to buy British companies in bargain deals.

“My advice to clients is keep looking, keep analysing but don’t rush anything”, said Dietrich Becker, a London-based partner at private equity firm Perella Weinberg Partners, who advised Henkel on its $3.5 billion acquisition of Sun Products.

Joe Cassidy, partner at advisory firm KPMG, said sovereign wealth, private equity and hedge funds had “done their homework and some are ready to act.”

“If you’re a cash-rich, dollar-rich company or investor, you might look at the trading this morning and see opportunity,” he said.

Reuters