Brexit chaos may erase Sh163 trillion from global mergers and acquisitions, study says

Britain’s exit from the European Union (commonly referred to as ‘Brexit’) could wipe as much as $1.6 trillion (Sh1.6 trillion) from future mergers and acquisitions, a new study says. The absence of a clear Brexit road map could lead to a cycle of political and market uncertainty and hit near-term investment plans and business confidence. This is according to a report dubbed the ‘Baker & McKenzie’s Global Transactions Forecast’, which is based on financial modelling by research group, Oxford Economics.

Given that growth forecasts for the U.K. economy have been halved to 1.1 per cent for 2017, merger volumes will also dip by at least $240 billion in the next five years, according to the report. The uncertainty created by the U.K. June 23 vote to leave the European Union has already had an impact. Global M&A so far this year is down 16 per cent to $1.5 trillion (Sh153 trillion) from the same period in 2016, according to data compiled by Bloomberg.

However, in the month since the U.K.’s referendum, about $103 billion (Sh10.5 trillion) in deals involving European companies have been announced, according to data compiled by Bloomberg.

“In the last few days we have seen evidence that the M&A market in the U.K. won’t come to a crashing halt even if it won’t be at its previous pace,” said Tim Gee, London merger partner at Baker & McKenzie. “London will also retain a remarkable concentration of financial, legal and economic talent.”

The study’s central scenario shows global merger activity to be “only modestly down for the next two years before fully recovering,” the report said. In a similar report in 2015, Baker & McKenzie, a multinational law firm headquartered in the U.S., forecast that fallout from a Greek exit from the euro could wipe as much as $1.4 trillion (Sh142 trillion) from future M&A.

Monday’s study has forecast a 40 per cent drop in mergers in the region, excluding the U.K., in 2017, compared with if the country had voted remain, Bloomberg reports.

Mergers and acquisitions (M&A) are transactions in which the ownership of companies, other business organizations or their operating units are transferred or combined.

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