Brexit uncertainty hits European buy-and-build

The impact of the uncertainty surrounding Brexit on UK companies led to a slowdown in European buy-and-build activity in the first half of 2018.

A total of £4.1 billion ($5.3 billion; €4.7 billion) of add-on acquisitions across 289 deals were recorded during the period, compared with £4.8 billion across 327 deals in the first half of 2017, according to Silverfleet Capital Partners’ European Buy & Build in H1 2018 report.

The primary reason cited for this was the lower-than-normal add-on activity in the UK, Ireland and the Nordics, which are usually the most active regions in Europe, the report noted.

The UK and Ireland, the most active region in Europe, delivered much weaker performance compared with prior years. This was mainly driven by fewer UK companies pursuing add-ons in the UK.

Commenting on the report, Neil MacDougall, managing partner of Silverfleet Capital, said: “Our view is that politics is at least part of the reason for this sea-change, no more so than in the UK and Ireland, with pre-Brexit caution the strongest explanation for the sharp drop in the number of domestic add-ons.”

The Nordic region was also notably weaker, with 41 deals against 74 deals a year ago. Sweden accounted for nearly two-thirds of total Nordic activity with 26 add-ons.

France, Benelux and Italy similarly showed a dip in performance, while the DACH region has seen the highest number of add-ons in recent years.

There were only eight transactions with a deal size of over £60 million, versus 21 such deals in the first half of 2017.

… but London offices are a plus, writes Brian Bonilla

More than half of global fund managers surveyed are likely to open offices in the UK following the country’s secession from the EU, viewing regulatory conditions as conducive for fund managers to operate there.

In State Street’s December survey, 55 percent of the 100 people who responded – which includes those in private equity, hedge funds and real estate from around the world – said they “believe UK authorities will make it more appealing to open London offices post-Brexit.”

The UK government and the Financial Conduct Authority, an independent regulatory body overseeing financial firms, have been implementing strategies to help attract fund managers in a post-Brexit environment. In 2017, the FCA announced the creation of an asset management authorization hub – a tool dedicated to making it easier for new firms to establish their business in the UK.

The UK looks to promote the FCA as a “go-to place to help managers and provide a user-friendly environment,” Brian Allis, head of State Street global services’ EMEA product team, tells pfm. “The UK has recognized that it needs to up its game when compared to other jurisdictions as we move through Brexit.”

Allis also highlighted how the UK has created an asset management task force – made up of CEOs in the fund management industry – which is dedicated to helping managers prepare after Brexit. The task force met Chancellor Philip Hammond in mid-December last year to discuss how to remain competitive after the split and expand into new markets such as the US and Singapore.

Overall the report found that investors had a negative outlook when it comes to the fund management industry post-Brexit. Only 24 percent of European-based fund managers will look to open offices in the UK after Brexit.