Brexit – The Financial Advisory Perspective
Plotting a new course
Following the UK’s vote to leave the EU, uncertainties revolve around a lack of clarity over the UK’s future trading relationships in goods and services (including financial services) with Europe and the rest of the world, changes required to UK legislation where it has followed EU laws and the changes in rules on freedom of movement on people.
M&A activity: The immediate impact of a reduction in business and consumer confidence and increase in uncertainty is likely to be a pause in investment activity, including some M&A. Our clients’ views are evolving in this area as they attempt to look through the immediate market response to understand how M&A targets may be impacted.
Debt markets: Immediate feedback from our debt advisory team is that the debt markets remain open for business and indeed some alternative lenders see the exit as a further catalyst for the move towards non-bank lending.
Currency markets: Foreign exchange markets reacted strongly to the news, and we would expect a decline in Sterling to lead to higher inflation which could be countered by interest rate rises. However it appears that the Bank of England seems more minded to cut rates and investigate policy responses to support the economy.
Impact on different sectors
Not all sectors will be significantly impacted by Brexit and these impacts are likely to be felt over a span of time horizons:
- In the next 3-6 months businesses are most likely to encounter distress either if they are exposed to unhedged forex risk that impacts trading or financial covenants, or if they were progressing a stressed/distressed M&A transaction or debt refinancing that has been halted.
- In the following 24 months as Brexit is negotiated the trading impacts of any weakness in consumer confidence or business investment will be felt through covenant issues of liquidity challenges.
- Post-Brexit implementation the impacts of different trading regimes in goods, services and financial services will be felt alongside any changes in EU subsidy arrangements.
For questions about this report, please contact Bas Castelijn, Harvey Christophers or Jean-Pierre Boelen via the below contact details.