Financial investors

Even before the Brexit referendum there was considerable uncertainty about the consequences of a UK exit from the EU. The majority vote in favour of Brexit has increased uncertainty on the markets – an uncertainty which, unlike in other areas, is already showing itself in practice. But how are financial investors affected by the referendum and, at the next stage, by the UK’s possible exit from the European Union?

Even during the run-up to the referendum, Brexit-related uncertainties had an effect on company sales in the United Kingdom, causing delays. In some cases, transactions are failing completely due to increasing complexities and risks, and of course also due to significant currency fluctuations. Our observations have shown that the uncertainties are generally having a negative impact on purchase prices.

Financial investors and their portfolio companies with activities in several EU Member States should be aware that they can definitely still operate under current EU law in the UK at the moment, so that mergers, acquisitions and restructuring are tax-neutral for them. As we see it, this creates short-term buying opportunities for financial investors and/or their portfolio companies wanting to purchase UK platforms, seeking to expand strategically through add-on acquisitions in the UK, or wanting to secure their business activities in the UK. With over 100 transactions per year, BDO is the market leader in the M & A business for SMEs in the UK. Our M & A professionals in Germany work closely with British colleagues, and we would be pleased to provide you with help, support and advice.

In the short term, not much will change for existing portfolio companies in the UK or for their operations, as existing EU law will continue to be applicable. However, portfolio companies of financial investors will need to take action quite soon, so that they have safeguards against potential risks arising from future breaks in regulations between the UK and the rest of the EU. Take, for instance, safeguards for certain intellectual property rights in the UK, to ensure that they cannot be lost. Our colleague, Julia Dönch at BDO Legal, has published an article on this issue.

There are many other areas where we can expect Brexit to have an impact. The effects of Brexit could be particularly substantial in the venture capital segment, as it may become difficult to obtain EU funding for UK transactions. We would therefore advise companies to think as soon as possible about the most likely scenarios and to devise appropriate alternative policies to ensure the sustainability of their business models. Likewise, after Brexit, start-up portfolio companies may find it clearly advantageous to establish themselves in Berlin rather than London, for instance.

Moreover, there are financial investors who, until now, have seen the UK market as the only organisational point of access for business investments in the EU or for obtaining funding from EU investors. In the medium term, we believe that it should be in their interest to relocate their operations to the EU single market, outside the UK. Our experts would be pleased to help you as sparring partners.

In our estimation, financial investors will definitely reap clear competitive benefits from keeping their structures sufficiently flexible and from being in a position to secure advantages and avoid risks in a more complex multi-jurisdiction environment. Our fiscal and legal experts would be pleased to help you with your activities in all the major European jurisdictions.

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