The UK M&A market is weathering the Brexit storm, as strong economic fundamentals continue to draw interest from international bidders.

Concerns that Brexit would deter foreign investment appear to be overstated, based on the activity to date. With 155 deals worth US$35.8 billion announced in Q3 2017, inbound M&A activity targeting UK firms topped all other markets in Western Europe by both value and volume.

There are a number of factors supporting the continuation of interest in UK assets, including:

  • The relative weakness of the pound - making UK companies relatively good value for money.
  • Vantiv’s agreement to acquire Worldpay also speaks to the broader attraction of London as a fintech hub.
  • The potential impact of Brexit is less of a concern for the largest UK companies than for their smaller counterparts. Multinationals benefit from the natural currency hedge of revenues derived from multiple markets.

However, not all sectors are immune to the “Brexit effect.” The weakness of the pound has led to inflation on the high street as the result of increased import costs, while British wage growth is trailing rising prices. This is presenting a significant challenge for the domestic retail sector.

It's still early days, where Brexit is concerned. Signs of weakness in consumer spending do not bode well for retail deals, and the most attractive M&A targets will be best defined by their expertise, IP and defensible market positions rather than by reduced price tags.