Fears about a Brexit are killing Britain's M&A market

Fears and uncertainty surrounding the UK’s upcoming referendum on its European Union membership are killing off the number of mergers and acquisitions being carried out by British businesses, according to a report from the Financial Times.

Citing data from Thomson Reuters, the FT points out that the volume of deals done so far in 2016 is almost 70% lower than the number undertaken over the same period in 2015, with UK-based transactions accounting for just 4% of all deals globally. Overall, M&A in the UK is worth £39.45 billion ($57.6 billion) so far in the year.

In comparison to the UK’s 70% fall, global M&A volumes have dropped just 20% from the same period in 2015.

In the run up to the EU referendum uncertainty about whether Britain will vote ‘In’ or ‘Out’ has stunted activity across the British economy, with manufacturers and employers in the services sector both reporting in recent months that they are deferring certain activities until after the referendum is over. That uncertainty has had a real world impact on deal-making.

According to an unnamed senior M&A adviser cited by the FT: “Brexit has had a real impact on M&A activity in the UK and also in Europe more broadly. Nobody wants to do deals when they don’t know whether their target will be in or out of the world’s largest single market.”

While the 70% fall is a huge number, it is in part down to 2015 being something of a bumper year for the merger market in the UK. The huge deal between Shell and BG Group, worth around $52 billion, one of the largest oil and gas mergers in the past few years, helped boost Britain’s statistics for the year.

Should Britain vote to remain in the EU — which is looking increasingly likely after several polls over the weekend showed Remain’s support increasing — M&A activity could get a big boost, with companies flooding into the market to do deals they have been putting off because of the referendum.

On the other hand, if Britain votes to leave the EU, the number of mergers and acquisitions in the UK could tank even further. “In a Leave scenario, I think M&A in Europe is going to turn very negative,” Citigroup’s EMEA M&A chief told the FT.

The EU referendum is increasingly difficult to call, although it currently looks as though Remain is just about edging into a small lead, after three positive polls for the campaign over the weekend. A poll for the Mail on Sunday by Survation gave the In campaign 45% of the vote against 42% for Out. A separate poll for the Sunday Times by YouGov had Remain at 44% to Leave’s 43%, and an Opinium poll for the Observer put the two sides neck-and-neck at 44%.

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