How attractive is the current UK market for overseas investors?
With the Prime Minister recently triggering Article 50, the potential impact of the Brexit deal to be negotiated comes into sharper focus with the nature of the trade deal likely to impact on future foreign investment in the UK. Foreign investment is important to the future UK economic landscape as it increases national productivity, and subsequently output and wages.
Potential impact of the trade deal with the EU
Approximately half of the foreign investment in the UK comes from the EU single market and higher trade costs are likely to depress it. Any decline might be moderate as many EU investors are primarily seeking access to UK markets and customers. Some experts suggest that a comprehensive trade deal, akin to the European Free Trade Association whose members participate in the EU’s single market, would significantly reduce the impact. However, such a trade deal seems unlikely unless the UK compromises on issues such as immigration.
The Brexit impact on investments from outside the EU could be more varied, with Asia demonstrating this best. Chinese and Indian investment is expected to remain strong as demand is mainly driven by their own domestic markets, coupled with UK investment opportunities being cheaper due to favourable exchange rate movements.In contrast, Japan and Korea are concerned about the UK not having access to the EU single market in the future, with Korea already relocating operations out of the UK and postponing or eliminating the UK as a location option.
It was anticipated immediately after the Brexit vote that transactional activity would decline but we continue to see a relatively buoyant market. The weakening of the pound has made and continues to make UK businesses cheaper for foreign investors.
It is inevitable that some countries will pull back on their investment into the UK. Sectors that rely on collaboration with the EU will become less attractive, but the exact terms of the future trade deal will be key.
So what can the UK do to continue to make itself attractive to overseas investors? There should be a focus on markets and sectors that will continue to offer the strongest proposition to foreign investors. In addition, enhancements can be made as to how UK businesses can become aware of companies that are planning on investing in the UK.
We have experience of cross border transactions, both on the buy side and the sell side, and we can provide services to support vendors with and acquirers. Such services can range from providing UK vendors assistance when selling to overseas investors to providing bid support and due diligence services to overseas acquirers.
If you would like to discuss this further please get in touch with me or another member of the Corporate Finance team.
Date: 2nd May, 2017
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