The pound has been one of the biggest casualties of Brexit so far.
Sterling has lost around 10 per cent of its value against the US dollar and the euro since the UK voted to leave the EU in June 2016 and shed 5 per cent versus the yen. It has lost over 16 per cent since the referendum was called in February 2016. One consequence of this is already clear: foreign firms are taking advantage by buying UK assets on the cheap. Companies from North America, Europe, Asia and elsewhere have bought nearly 1,000 UK companies for over £230 billion since the referendum was held, according to data from the Office for National Statistics. In comparison, UK businesses have purchased just under 500 overseas businesses for £106 billion.
Brexiteers claim Britain can reinvigorate its position on the world stage after it leaves the EU, but the fact is UK businesses are being swallowed up by foreign firms, not the other way around. This includes well known consumer brands like GHD Group and Dairy Crest, but the UK has also lost some of its most strategically important businesses to overseas buyers, like semiconductor makers ARM Holdings and Imagination Technologies, as well as vital infrastructure like Gatwick Airport.
Japan’s Softbank launched its bid for ARM less than one-month after the referendum was held and Hermann Hauser, one of the founders of the chipmaker, said the sale was opportunistic considering the pound had lost so much value versus the yen. He said Softbank’s takeover of ARM was “sadly one of the unintended consequences of Brexit”.
The president of French firm Vinci, which recently completed its purchase of a majority stake in Gatwick Airport after launching a bid late last year, said he “would not even have dreamed of being able to acquire” such a prized asset for so cheap just a few months earlier.
There are other factors at play. Private equity groups are flush with cash and many UK assets have had Brexit-discounts slapped on them. The state of sterling is not the sole reason for the slew of foreign takeovers, but it has encouraged them to take the plunge.
Most of the biggest takeovers since the referendum have looked flattering at first glance, often being made at large premiums. But, in some cases, these ‘premiums’ are not as appealing as they first seem.
Take one of the most recent takeovers as an example. A company controlled by Hong Kong’s richest man, Li Ka-shing, has agreed to buy British pub chain Greene King for £4.6 billion. That is 50 per cent higher than Greene King’s share price before the bid was launched, which understandably wooed investors. But the price is less enticing when you consider the stock had lost more than 28 per cent since the referendum vote while sterling had dropped 10 per cent against the Hong Kong dollar. The notion that Greene King has potentially been sold off on the cheap is cemented by the fact its property portfolio alone was valued at £4.5 billion at the end of April.
The pound is still flirting with its post-Brexit lows against the dollar and the euro, and investors should expect more foreign takeovers while the pound is low. However, they should take a closer look at the premium before celebrating.
British business is currently the target of short-term opportunists, but this will have long-term consequences. Many have called for the UK government to tighten controls over foreign takeovers but to no avail. For now, Britain remains a bargain for overseas investors and the shop doors are open.