General Election 2017: This is what a hung parliament could mean for the UK's M&A market

William Turvill
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The Square Mile - London's Financial District
The UK woke up to a hung parliament this morning (Source: Getty)

Today’s hung parliament is the “last scenario dealmakers will have been wishing for” and could prove a dampener for the UK’s M&A market, experts have suggested.

Raj Karia, head of M&A for Norton Rose Fulbright in Europe, noted that deal activity “held up relatively well after the initial shock of the outcome of the Brexit referendum”.

But he added: “With the General Election completed, there is now significant political uncertainty in view of the result.

“This, combined with the start of the formal negotiations for implementation of Brexit, will create a challenging back drop for deals – unless the Brexit negotiations are seen to be progressing smoothly.”

But Tim Gee, a Baker McKenzie M&A partner, said his M&A forecast is up.

Sterling will stay relatively weak, so the capital cost of UK assets will remain attractive. Brexit will be softer, but only marginally. The uncertainty index remains high.

But uncertainty is precisely the environment in which M&A creates most value, as companies can achieve business growth or business model change most rapidly. Our own M&A forecast is up.

Read more: What a hung parliament means for the stock market

Bob Bishop, co-chair of DLA Piper’s M&A practice, said: “Many in business wanted nothing more than certainty to flow from this election. Certainty helps stabilise the markets, underpins the economy and could have provided a firmer footing for Brexit negotiations.

“The result – a hung parliament – offers anything but. Expect continued pressure on the pound, increased market turbulence and stronger headwinds when it comes to M&A.”

Michel Driessen, EY’s transaction advisory services markets leader, said:

Additional uncertainty could reduce transaction activity, at least until the dust settles. Businesses and government will have to work together to build on the UK’s strong underlying fundamentals and ensure that the UK remains an attractive and competitive destination for deals and investment in the future.

Jonathan Klonowski, EMEA research editor at Mergermarket, said: “Uncertainty is never conducive to M&A and a hung parliament is the last scenario dealmakers will have been wishing for. May was the slowest month for UK M&A this year and it would not be surprising to see a drop-off in deals in the near future.”

Read more: This is how the City and business groups are reacting to #GE2017 results

Paul Lupton, head of corporate finance advisory at Deloitte, said: “Of course uncertainty is never welcome in the M&A markets and typically creates a temporary lull. However markets pick up rapidly when certainty returns and current market conditions, with low interest rates and strong balance sheets, remain a good backdrop for M&A overall.”

Phil Sanderson, a private equity partner a Ropes & Gray, said: “Whenever there is such a surprise volatility is inevitable in the markets, but I would predict the current sellers’ M&A market will be less impacted by the uncertainty than it might in other times be.

“This is because the Brexit elephant in the room still encourages sellers to sell now and there are more than enough buyers willing to discount this as a bit of local political difficulty.”

Jonathan Morris, a corporate partner at Thrings solicitors, said the uncertainty could also be felt in the IPO market.

“We can see a lot of IPO transactions being put on hold until the early autumn when the political landscape should be clearer,” he said. “There was already a number of transactions slated for this window, which may create a bottleneck. Last year we saw a similar situation following the Brexit vote which resulted in very few companies coming to market over the summer months.”

He added: “The FTSE 100, however, remains at high levels, which suggests that for the time being at least, there is still investor appetite for UK equities and therefore potential demand for new issues.”

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