U.K. law firm Bond Dickinson’s Head of Competition and Regulation, Francesco Lamanna, and Domtar Corp. CEO John Williams Bond Dickinson discuss what impact Great Britain’s decision to leave the EU might have on mergers and acquisitions in this latest addition to our multi-part video series discussing the potential challenges and opportunities Brexit poses for businesses on either side of the Atlantic.

Mark: And, Francesco, from a mergers and acquisitions standpoint, are you, are we seeing any slowdown in, in that area right now or are deals getting put on hold or is this a great time because of price, namely for currency reasons at this point?

Francesco Lamanna: Well, I think there has been a little bit of a dip in merger activity.  I think because of the element, the uncertainty.  But with regards to answering the question of whether now is a good time to, to go ahead with a merger or whether people should wait and see, the reality is the situation we’ve got at the moment, you’ve got a one stop shop approach to merger clearance.  So, where you have a merger that has a pan-European impact and hits certain thresholds that would be caught under the European Union merger regulation, you have the benefit of making this application to the European Commission to receive clearance of, of your transaction.  Now that, that means that rather than having to notify say in the UK, Spain, Italy and wherever else potentially this, this merger would have an impact, you just go to Brussels and you have a set timetable, a set program and you’ll have a certain degree of certainty of what that’s going to look like or at least predictability from a regulatory point of view of what the requirements will be.  Obviously, in the post-Brexit world, depending on what ends up happening between the EU and the UK, we don’t really know what that could look like.  I mean, potentially where you could end up is you have two merger filing requirements that will then be, you know, necessary for any company looking to do a transaction that has an impact in Continental Europe and in the UK.  So, you’ll have to go through a UK merger clearance process and then you have a separate EU merger clearance process.  That creates an element of uncertainty.  Possibility that you’ll have regulatory authorities taking different viewpoints on what they think the competition issues with regards to the transaction.  Additional costs.  Duplication of costs potentially and different timelines.  And, so, I guess there is that element of uncertainty.  So, I suppose in some ways, if a business were to think, well, should I, should I stay or should I go?  Should I go now or wait?  Provided that the business case stacks up, provided the numbers all work and you’re thinking, well, actually, you know, now is a great time to do a deal, then there’s nothing to really kind of keep businesses from wanting to go ahead and do that.  Particularly if you think that it’s going to be something that’s going to have, again, a pan-European type of transaction that will then potentially require notification in a number of different jurisdictions, to get the benefit and the certainty of the one stop shop, there’s a lot of merit in going for that.

John: Jon, you’ve, you’ve yeah it was an interesting pitch, I thought.  It was kind of buy now while stocks last, you know.  

John: Um, before it gets too complicated for sort of simple manufacturing types.  I suppose, I think if you buy a UK company, what you really have to think about is you’re not really buying UK sales.  I mean if you’re buying a FTSE 250 or well certain a FTSE 100 less a FTSE 250, you’re really buying an international business that is based in the UK.  So it would seem to me large transactions could still happen because the logic says you take one recently for example, you know, Rexum and Bull in the can business.  I mean Rexum may have been headquartered in the UK, but really it was an international business which probably had 10% of its sales in the UK.  So I think you’re going to see that because nothing much has changed around that.  I think true UK businesses that have domestic business and that’s who they are, you’re probably going to see activity there because you’re buying a UK position.  So it would seem to me it’s going to get fairly binary.  I think you’re going to see large transactions and you might see small transactions to get a country position. I’m not, the middle ground, the FTSE 250 where they’re a little bit of both, not really UK… I would think people might think about that and say to themselves, actually I need a little bit more certainty before I see that happen.  I mean that would be fairly uninform you, but I think that’s what I would see happening.  

Mark: Under your leadership, John, you’ve done a number of acquisitions. And also at the same time, you’ve grown the dividend consecutively for the last 6 years, so… And balanced that with the acquisitions.  What sort of framework would you need to see to make this attractive?

John: Well, you’re talking about this space, the UK space or EU space.  I mean, yes, we’ve bought two businesses in the EU.  I would just remind us all that 80% of all motions and acquisitions do not give the shareholder the return they were looking for.  So if you then put uncertainty on top of that, I think most CEOs are going to say actually the risk or little, the all just slightly weighted less in favor of than they used to be.  I mean for us it would really be market position.  So, if we felt there was compelling business that was available in a particular market that gave us a market position and some geography or a position with a particular customer.  I mean we would certainly, I don’t think anything would stop us doing M&A cause we’ve been fairly active, I mean we bought five businesses in the last three or four years, and we continue to look.

View Part 1 - Brexit: Overview and Reactions

View Part 2 - Brexit: Currency Issues and Inflation

View Part 3 - Brexit: Outlook for the EU and Impact on the U.S.

View Part 4 - Brexit: U.S. Opportunity in the U.K.

View Part 6 - Brexit: What the U.K.’s Exit Might Look Like

View Part 7 - Brexit’s Potential Impact on Corporate Passporting and the Banking Industry

View Part 8 - Brexit’s Potential Impact on Corporate Passporting and the Banking Industry