How has the snap election affected the UK M&A market?

Political and economic uncertainty has knocked a dent into British M&A sentiment - only time will tell whether this translates into lower deal volume for the rest of 2017.

In a climate where UK businesses are already reeling from the forthcoming departure from the European Union, currency fluctuations and rising costs; the recent general election results have only worked to feed into anxieties.

The hung parliament and the prospective coalition with the DUP all raise questions over the future and direction of this new government and what it means for those looking to sell or buy a business.

At the recent Reuters Global M&A summit, Karen Cook, Goldman Sachs’ chair of investment banking, said: "So long as uncertainty is there I don't see that as particularly positive for M&A in the short term”.

Michael Metcalfe, global head of macro strategy at State Street Global Markets, noted: “Markets were poorly prepared for this surprise result in UK. While the dramatic narrowing in polls prior to the vote had introduced an element of doubt, an outright Conservative victory was still the best case scenario for most.”

Up until June, the year has been very bullish for M&A in Britain, up 89 percent year-to-date, compared to the same period last year.

And if past elections are anything to go by, dealmaking should in theory continue to thrive.

According to Thomson Reuters data, more M&A deals involving a UK target company were announced immediately after the last two elections than immediately before. And an increase in outbound acquisition deals occurred after the last three general elections.

However we are in an arguably more turbulent period now, with many business leaders troubled by the uncertainty of the election's outcome. Still, others are hopeful that this will lead to a softer Brexit and continued access to the single market – potentially outweighing other concerns for both big businesses and SMEs.

Financial Instability

Director-general of the CBI, Carolyn Fairbairn, called for the new government to keep “a strong eye on financial stability” and to put “the economy right back on the agenda”. Adding that businesses “will be looking to the government to create a functioning administration quickly”.

She also highlighted the importance of maintaining the UK as "a safe destination for business".

Volatility in the currency markets directly after any political results are always expected and should not be a significant cause for concern. Both Brexit and the 2015 election results saw a sharp fall in the pound which was then followed by a period of recovery.

However these fluctuations can cause headaches for small business owners, increasing the pricing pressures on overseas goods and services.

SME Advisor for Business Doctors, Peter Fleming, explained: “SMES can’t fix their prices as large corporations do through hedging currency without it taking too much of their margin.”

Small businesses are by nature less diversified and less able than larger firms to weather big changes in economic conditions. Because of this, it's always a good idea to be prepared, thus minimising any risks. For example, exchange rate clauses, forward contracts and open conversations with suppliers can all help in managing risk and maximising opportunity.


Hard or Soft Brexit

Although the Conservatives are traditionally seen as the pro-business party, Theresa May's pioneering of a hard Brexit with a departure from the EU’s single market and an abandonment of free movement lost her the support of many. However, with her new minority government it's likely that many compromises and political concessions will be made – softening her approach on certain issues.

The hung parliament of 2010, for example, resulted in several political negotiations which damaged the reputation of both the Conservatives and the Liberal Democrats. That coalition helped to facilitate a more centrist government than was expected, but was hindered by internal division. The potential of a coalition between the Conservatives and the DUP may require similar compromises, with the possibility of the Conservatives deviating from key areas for businesses.

The DUP are expected to want softer Brexit terms, especially with regard to movement and trade with the Republic of Ireland. This may be welcome to some who are hoping for a more balanced approach to negotiations, whilst others may see it as yet another obstacle to a strong negotiating position.

In Mrs May’s pre-election plans, she promised to make it harder for foreign companies to take over British firms, as part of a strategy to give the state more influence over corporate Britain.

May said her government would tighten the rules around takeovers to protect jobs, and would target infrastructure deals where a foreign owner could also raise security concerns.

But it’s anticipated that the DUP will look to soften some of the Conservative's more stringent social proposals which could result in changes to tax receipts, and in turn the rates charged. Conversely, the DUP might look to pursue the Conservative vision of low corporation tax in order to remain competitive with the Republic of Ireland in terms of business taxation.

The government is also under pressure from the UK’s largest business groups, including the Institute of Directors (IoD) and Confederation of British Industry (CBI), to put the economy first in Brexit negotiations, to secure a transitional deal that retains access to the European single market and provide clarity over the new immigration regime.


A hung parliament raises many questions, but despite lurking uncertainty the overall feeling in the market is one of positivity. There are signs of strong demand for deals which inevitably lead to higher valuation metrics being applied. Volatility should therefore represent a temporary lull in an otherwise robust market.

The long-term effects on business will not be known until final decisions are made but on balance we expect considerable opportunity in acquisition markets.

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