BREXIT: referendum result presents challenges and opportunities for business, expert says

Out-Law Analysis | 01 Jul 2016 | 5:19 pm | 2 min. read

FOCUS: While some mergers and property transactions were cancelled or delayed in the immediate aftermath of the UK's vote to leave the EU, record-breaking fluctuations in the value of sterling are creating opportunities for business in other areas.

This is part of Out-Law's series of news and insights from Pinsent Masons experts on the impact of the UK's EU referendum. Watch our video on the issues facing businesses, and sign up to receive our 'What next?' checklist.

While we have seen a huge array of practical questions from the London-listed companies that are our clients over the past seven days, we are also beginning to see businesses starting to look for opportunities in the chaos.

Companies want to explore how they can try to inform the UK government, help shape its future thinking and the approach it adopts towards negotiations with the EU. There is a window of opportunity to begin the process now. Once Article 50 is triggered negotiations with the EU are likely to become all-consuming for the UK, with less scope for dialogue.

The business standard for pre-referendum planning appears to have been relatively rudimentary - albeit perhaps better than that of the government. While most companies gave the potential for a 'leave' result some thought, corporate risk registers seem to have been aligned with the markets and bookies - as indicated by the YouGov research we published ahead of the referendum, which showed that only one in four companies had detailed plans in place for Brexit and only half had discussed the issue at board level.

As a result, this week we have been supporting companies with more detailed scenario planning: trying to ascertain the range of most likely potential outcomes for their businesses; and helping to identify the steps that they can then take to best prepare them for that range of future outcomes. Other companies at this stage are simply seeking a better understanding of the process and potential timings for Brexit, and to understand what range of alternative trading arrangements being put forward in the press would actually mean for them.

The most immediate effect of the referendum result was that by lunchtime last Friday, a number of M&A and property transactions had been aborted and others put on hold. However, the impact on the markets has not mirrored that of the collapse of Lehman Bros in 2008: a number of deals have proceeded to close, and others remain on course to do so.

On some occasions, prices have taken a slight knock - however, the referendum result has not meant a hard and fast rule that M&A has to stop. Indeed, where the target company is UK-based we have seen renewed interest from overseas buyers attracted by the depressed rate of sterling. This is true on the property side also: while one Singaporean bank made the high-profile decision to cease lending on London real estate, our colleagues in China predict that Chinese investors will be attracted by the relative value brought by the weak pound.

Indeed, the record-breaking fluctuations in the value of the pound have brought challenge and opportunity to businesses in other ways. Some have been looking for help to insulate new hires at senior management level against sterling fluctuations, and an upwards rise in the cost of living in the UK. Meanwhile, companies that account in non-sterling currencies have been eyeing the opportunity to settle UK disputes at a discount.

In the week ahead, all eyes will be on the London Stock Exchange to see whether its proposed tie-up with Deutsche Bourse will happen. If that deal stalls, there may be yet another dent to market confidence. We also expect interim results from IT provider RM Plc, a trading update from Kier Group and property developer St Modwen's half-year results – all of which may shed further light on how some of the UK's biggest business sectors are responding to the implications of the referendum result.

Guy Lougher is an EU law expert at Pinsent Masons, the law firm behind