The Politics Of M&A
Tuesday, 5th May 2015
Internal politics usually have an important influence on mergers and acquisitions (M&A) but general elections mean Westminster politics quickly rises up the agenda too. The particular uncertainties of this general election have had a major impact on business activities as the focus has shifted heavily onto the campaigning of political parties.
Business people and the wider population are used to opposition parties promising to rectify or change policies of the current government while incumbents offer inducements to the population. This election is proving to be no different but with an added twist after five years of coalition. In all the pledge-making and discussion that has been going on, businesses must try and discern what the real-politic of the day actually is and what promises are likely to be upheld, give current economic constraints, as they make their own strategic choices.
Will the M&A boom continue?
M&A is the very definition of strategic business activity so it is interesting to observe what, if any, effects the election has been having. There has been an observable boom in the recent past with the last quarter of 2014 indicating the largest volume of M&A deals since 2011. Across the UK, the financial services sector and manufacturing sector have been pivotal in this boom.
Straw polls regarding the impact of the general election on M&A in the UK have typically produced mixed views. Optimists are betting that despite the election uncertainty, the boom in M&A will continue. There may be a slight lag around the time of the election but, irrespective of the outcome, M&A will continue to grow.
What is worrying the pessimists?
On the other side of the argument, there are doubts as to whether M&A will continue to flourish. In the run up to the general election pessimists predicted that UK M&A would be subjected to various pressures from the politics of the day.
The possibility of a Brexit from the EU has also been widely discussed over the last few years. If the Conservatives and UKIP hold power, this could be threatening for businesses considering the reality of Brexit. Many businesses will be affected, particularly multinationals as they have a vested interest in the UK being a part of the EU. Moreover, the prospect adds uncertainty to the trade activities between the UK and EU. Polling figures have been almost neck and neck recently but the latest YouGov poll shows around 45 per cent of respondents in favour of staying in while only 35 per cent of respondents favour an exit. However, the reliability of polls provides cold comfort for business executives faced with major strategic decisions.
This makes the immediate future of M&A almost as uncertain as the potential outcome of the election itself. Even basic political evaluations are far from simple - a Conservative party win may be more likely to raise the risk of Brexit but a Labour party win may indicate a less friendly business environment for businesses, with the possibility of policies such as a higher minimum wage and more draconian rules around tax issues like transfer pricing. The likelihood of another coalition also throws a host of other potential issues into the melting pot.
M&A has had a good run recently but its immediate future in the UK remains uncertain until the election. With little time left to run, business executives will no doubt be holding their breath before making their next big strategic move.