'We're at the sharp end' – with Brexit looming, UK lawyers dig in for a tough six months
Ahead of Brexit Day next March, law firms are grappling with growing market uncertainty
September 28, 2018 at 12:00 AM
4 minute read
The original version of this story was published on The American Lawyer
Across Europe, M&A and financial services markets have remained buoyant throughout 2018. But with Brexit looming, and the US and China continuing to exchange blows ahead of what many fear will be a global trade war, notes of uncertainty are starting to ring out.
With M&A deals on the rise in Germany, France, the Netherlands and other parts of Europe, the priority for UK lawyers is introducing certainty to deals and insulating clients from potential political and economic shocks during the next six months and beyond.
"The biggest issue is investor confidence," Charles Currier, co-head of corporate at CMS, says. "A year and a half since the Brexit referendum, the markets have been remarkably resilient. But the difficulty for clients is uncertainty. The potential macro headwinds feel a bit closer."
If this level of uncertainty continues into 2019, Currier stresses, "it may be a problem". Anyone who believes they have a clear idea of what's to come in the next six months "is kidding themselves", he says.
"I've started to hear from colleagues that more clients and their financial advisers are looking to accelerate the finalising of deals as soon as possible because they fear the future is less certain and may be problematic," Currier says. "It might be that clients will put on pause investments they're looking to make."
For Alexis Roberts, Pinsent Masons' head of financial services, it is "absolutely critical that clients can continue as before from day one [of Brexit]".
He suggests that most financial services clients are assuming a worst-case scenario, which will provide more work for lawyers as a byproduct: "Clients are restructuring their businesses so they are Brexit-ready from day one, however hard Brexit may be," he says.
Similarly, Andy Ryde, corporate head at Slaughter and May, says: "Clients are gathering themselves."
"I think we'll see almost daily volatility as negotiations continue," Ryde adds. "This will have an impact on M&A. Although the climate remains better than we expected, we wouldn't be surprised if clients put off decisions on big deals. They're asking: 'Why do a deal now when we're so exposed to swings in valuations?'"
Despite the uncertainty, Ryde believes the UK will remain "very much at the forefront" of the deals market.
Anyone who believes they have a clear idea of what's to come in the next six months is kidding themselves
"We have a liquid market with many multinationals located here and the City is Europe's financial centre," he says of London. "Then we see Germany, France, Spain, Italy and also the Netherlands, which has a disproportionate share of the market given the multinationals based there."
Germany and France boast active M&A markets, Ryde says, but he doesn't expect Brexit to catalyse action around Europe.
"The economic climate is what really matters," he says.
As Ryde points out, the eurozone's GDP growth has outpaced the UK recently, and despite the potential for trouble in Italy, there's been no major European financial crisis of late.
"The eurozone doing well is a good thing – it will remain a major trading partner for the UK and so a prosperous eurozone is in the UK's interests," Ryde says.
Slaughters' head of M&A, Roland Turnill, agrees that the "UK accounts for a high proportion" of M&A deals, but concedes that "we're at the sharp end – it's coming quite soon".
Turnill wonders whether we will start seeing banks move operations away from London.
"We see some going to Paris, to Dublin, Amsterdam. But no one country has been dominant, and the overall effect has not been particularly significant so far," he says.
Whatever form new challenges posed by Brexit may take, the general mood leans to the positive – the overriding sense being that London will prevail.
As Roberts points out, businesses "value the fact that the pooled resources in London give them access to a wide range of expertise". Without this, concerns would abound over "having people in a number of locations, rather than just one major hub", which would increase costs in the long term.
"In any event," he adds, "London will remain an absolutely critical financial services centre."
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