Britain formally left the European Union on Jan. 31, after lawmakers voted to ratify an agreement allowing for the withdrawal. The vote, which saw lawmakers vote 621 in favor and 49 against, with 13 abstentions, jump-started an 11-month time period during which London will be bound to EU laws and its regulatory framework as negotiators work out a new trade deal.
Although there are still many questions to be answered, the vote represented the final hurdle that needed to be cleared. For the first time since 2016, deal-making clients can feel confident looking to the U.K. for transactions and knowing, generally, what the future holds, according to Frank Aquila, a partner at Sullivan & Cromwell LLP and global head of the firm's M&A practice.
"By and large, companies in and outside of the U.K. are looking to do deals," he said.
That doesn't mean the floodgates are about to open, however. According to Aquila, many deal makers will want to see what the specifics are behind Brexit, and what it actually means for U.K. companies.
"Once the trading rules are better understood and companies have a fuller understanding of the economic impact, I expect that we are going to see more transatlantic M&A activity, as well as more deal activity among U.K. companies, between U.K. companies and EU companies, and U.K. companies and companies in other parts of the world," he said.
Uncertainty is poison for deal makers, which explains why the last few years have been relatively quiet for deals lawyers who have clients that are typically active in the U.K. market.
"The crucial point is that last year at this time there was a question as to whether there was even going to be a Brexit," Aquila said, noting that no one knew whether there would be a hard Brexit, a soft Brexit, or perhaps even a second referendum that could have led to no Brexit at all.
According to Will Pearce, a partner in Davis Polk & Wardwell LLP's corporate department who practices out of the firm's London office, the recent vote is positive for people who rely on M&A in the U.K. He said things have already picked up after a year in 2019 that featured both periods of extreme silence and flurries of activity on the deals front.
"Last year was a slightly mixed year in the U.K.," Pearce said. "It was quieter in the first quarter, then got really busy in the middle of the year through to the autumn. It went quite quiet again towards the back end of the year, but things generally go quiet when you have the uncertainty that can surround a general election. Activity by U.K. public companies was significantly down."
Pearce said that Boris Johnson's December victory was a positive development for the market because it provided some clarity; this has led to a strengthening of both U.K. stock prices and the value of the pound. Anecdotally, he said investment bankers were busy pitching new deals in the last couple of months of 2019, which, with the certainty of the election result, is now leading to opportunities for lawyers.
"We've had a really busy couple of weeks responding to pitches for new deals," Pearce noted.
The anticipated uptick in deals activity also means law firms can feel confident building up their resources as they prepare to handle more M&A, according to Alan Farkas, a partner in the London office of Dorsey & Whitney LLP and a member of the firm's corporate group.
"Here at Dorsey we're certainly gearing up in terms of lawyer recruitment, both in terms of M&A and other complementary specialisms such as IP and commercial," Farkas said.
Still, even as lawyers gear up for a return to normalcy, unknowns remain. It's easier to say that M&A activity will pick up once trading rules are set than it is to speculate about what those rules might actually look like. In the coming months, people on both sides of the Brexit issue are likely to try and convince the world that their opinion is correct. Those in favor of the withdrawal will wax poetic about the opportunities it will present for the future, while those who have been against it from the start will warn that the U.K. is unlikely to negotiate a deal in the allotted time frame.
"People will have to ignore the next six months of hyperbole and posturing by both the EU and U.K. governments," Farkas said. "As we move toward the end of the year, things will start to become clearer."
One question many people have about a post-Brexit world is whether the U.K. is going to seek significant deregulation. But according to Pearce, European corporate and securities law is based quite heavily on U.K. corporate and securities law, so there's no reason to believe there will be a "bonfire of laws and regulations in the U.K."
Meanwhile, even if there was a push for significant deregulation, no major changes are going to happen overnight, he said.
"Even if the U.K. government pursued extensive deregulation, because of the extent of harmonization within the European Union over the last 40 years plus, that's not something that is going to happen quickly," he said.
The real impact at the end of the current transition period would be the reintroduction of custom checks on imports and exports, Pearce said, and perhaps Brits will have to pay a small fee for tourist visas to travel throughout Europe.
"But from a legal perspective, it will take a long time for any significant divergence to emerge," he said.
Brexit aside, it's important for attorneys to be aware that there are many other global matters that could affect the M&A market globally in 2020. Pearce pointed to the upcoming U.S. presidential election and the alarming spread of the coronavirus as two examples of issues that could impact M&A this year.
"Brexit isn't the only headwind the deal world is facing," he said.
Despite the other issues that could plague deal-making globally, attorneys should be preparing for a jump in U.K. M&A activity, even if it's not something that's going to happen overnight.
"I don't think that in November or December you're going to see no deals and then a huge number of deals in January," Farkas said. "It's more like a slow burn. An ever-increasing uptick."
--Additional reporting by Martin Croucher. Editing by Rebecca Flanagan.
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