There has been a plunge in the number of deals between large organisations and UK small and medium-sized enterprises (SMEs) due to Brexit uncertainty, new research reveals.
The study by law firm Bond Dickinson showed that 28 per cent fewer deals occurred in the 2016/17 financial year than the 12 months prior, breaking a three-year upward trend.
However, the combined deal value reached more than £21bn, which exceeds large organisations' research and development spending over the same period by 31 per cent.
“Collaboration with SMEs has become a key strategy for delivering corporate innovation,” said Bond Dickinson managing partner Jonathan Blair. “With the economic uncertainty in both the UK and Europe the short-term hiatus in deals is understandable, but innovation continues to be a key priority for businesses facing disruption from all corners.”
The number of deals – which include mergers and acquisitions, minority stake purchases and joint ventures – peaked in 2015/16 at 1,536 before falling to 1,111 in the most recent financial year.
Bond Dickinson attributes the recent disappointing figures to the Brexit referendum, as business investment shrank by 1.5 per cent in 2016 according to the ONS for the first time since 2009.
Deals in the financial services industry – which has been the most active sector over the last four years, with large financial services firms investing £31bn in 1,864 deals with SMEs – dropped six per cent less than the national average.
A much greater proportion of deals in the financial services industry were minority stake purchases, which constituted 75 per cent as opposed to the 44 per cent national average.
Since the 2013/14 tax year, large organisations both at home and abroad have funnelled £102bn into UK SMEs, which equates to more than a seventh of the £683bn total UK business investment.
Despite the cloudier picture faced by SMEs, the UK's overall business investment figures may still be buoyed by mega-deals such as the takeover of ARM Holdings by Softbank and the purchase of SABMiller by InBev.