Brexit chaos may erase SS$2.1 trillion from global M&A, study says

Pedestrians walk past the Bank of England in London, UK, on July 14.
Pedestrians walk past the Bank of England in London, UK, on July 14.PHOTO: BLOOMBERG

LONDON (BLOOMBERG) - A disorderly exit by the UK from the European Union could wipe as much as US$1.6 trillion (S$2.17 trillion) from future mergers and acquisitions, a new study says.

The absence of a clear Brexit road map could lead to a cycle of political and market uncertainty and hit near-term investment plans and business confidence, according to Baker & McKenzie's Global Transactions Forecast, which is based on financial modeling by Oxford Economics.

With growth forecasts for the UK economy halved to 1.1 per cent for 2017, merger volumes will also dip by at least US$240 billion in the next five years, according to the report.

The uncertainty created by Britain's June 23 vote to leave the European Union has already had an impact. Global M&A so far this year is down 16 per cent to US$1.5 trillion from the same period in 2016, according to data compiled by Bloomberg.

Yet it isn't all gloom and doom. In the month since the UK's referendum, about US$103 billion in deals involving European companies have been announced - including SoftBank Group's US$32 billion bid for UK-based ARM Holdings Plc and Paris-based Danone's agreement to buy WhiteWave Foods Co - according to data compiled by Bloomberg.

"In the last few days we have seen evidence that the M&A market in the UK won't come to a crashing halt even if it won't be at its previous pace," said Mr Tim Gee, London merger partner at Baker & McKenzie. "London will also retain a remarkable concentration of financial, legal and economic talent."

The impact of Brexit won't lead to a global "Lehman moment", and the study's central scenario shows global merger activity "only modestly down for the next two years before fully recovering", the report said.

In a similar report in 2015, Baker & McKenzie forecast that fallout from a Greek exit from the euro could wipe as much as US$1.4 trillion from future M&A.

Under the more adverse scenario, Monday's study forecast a significant slowdown in euro-zone growth and a 40 per cent drop in mergers in the region, excluding the UK, in 2017, compared with if the country had voted to remain in the EU.