Brexit: How Do US And Overseas Investors Take Advantage?

Author:Mr Michael Thompson and Paul Hughes
Profession:Steptoe & Johnson LLP
 
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Introduction

This briefing note examines certain legal implications of Brexit for US and overseas investors seeking to take advantage of the exchange rate volatility.

Background

The value of sterling is being impacted by Brexit - at times positively and other times negatively.

As the UK nears the October 31, 2019 exit date, speculation surrounding a general election and the real possibility of a "no-deal" Brexit are prime ingredients for shifts in the currency and exchange markets.

The current view is that there will be a general election in the UK before the end of the year; the Prime Minister and the make-up of the government may change. This could have a further impact on the value of the pound and the economy as a whole.

However, it is not all 'doom and gloom.' The falling pound against the US dollar - the weakest since the mid-1980s - presents an opportunity for US and overseas investors in the UK market to acquire assets at a perceived discount and on improved deal terms. It is noteworthy that there have already been significant levels of investment in the UK technology and media sectors between January and July 2019 - large parts of which are derived from the US and Asian market. In addition, CK Asset Holdings announced the takeover of UK pub group Greene King for £4.5 billion, Hasbro announced the £3.3 billion acquisition of 'Peppa Pig' owner Entertainment One, and Advent International Corporation announced the £4 billion purchase of Cobham PLC; all of the announcements occurred during Summer 2019.

Although deemed advantageous, a favorable exchange rate is not the sole driver to complete a deal in the UK, but just one of several factors. A weak pound is not always good news as it will have an effect on returns and the overall value of an investment made by US and overseas investors.

Part of the challenge for US and overseas investors will be weighing the impact of a "no-deal" or hard Brexit on a proposed investment or acquisition. While there are certain commentators who see Brexit as a negative, there are others who believe the benefits of investing in the UK outweigh the short-term negative impact of Brexit for a number of reasons including the common language, common culture, and legal structures that enable business models to be shared across the transatlantic. In addition, the competitive corporate tax rates, a highly regarded judicial system, low levels of corruption, a sophisticated employment market, and an expanding technology industry are positive reasons to make investments in the UK.

In the context of an acquisition strategy for US and overseas investors, we set out below certain issues that may need to be considered as part of a proposed investment in the UK.

Commercial and Related Matters

A "no-deal" Brexit will result in the UK becoming a "third country" with respect to the EU. If this occurs, the UK legislative landscape will be an uncertain one. The general economic climate in the UK and sector-specific issues will depend on the unfolding legal environment and ultimately, may have varying impacts on UK-based businesses. Where such impact...

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