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Surge in UK M&A activity by Japanese companies in 2016, despite Brexit vote

Japanese companies spent $33.5bn on acquiring UK companies in 2016, compared to only $9.5bn in 2015.

Contrary to some expectations, there was an increased number and value of such deals, according to Dealogic data published by the Financial Times.

Much of the value was made up of a single deal, SoftBank’s acquisition of UK chip designer Arm Holdings in July for $32bn.  At the time, SoftBank’s CEO and chairman described the deal as his “big bet” on the UK after the Brexit referendum.

However, there were also an increased number of purchases (37 in 2016 against 29 in 2016), including Nagatanien taking over the UK’s Chaucer Foods for $130m.

Much of the increase in this M&A activity is said to be as a result of the fact that Japanese companies took advantage of the reduction in value of the sterling against the yen. Makoto Inoue, president of leasing and investment group Orix, explained to the FT that “after the uncertainty the price always catches up so we have to be there as soon as possible” and referred to this stage of Brexit uncertainty as “the best opportunity” for investment.

WAB Comment

Few imagined that UK M&A activity would surge during Brexit’s period of uncertainty, but the combination of a weaker pound and a reliable legal infrastructure evidently encouraged a growing number of Japanese companies to make a series of acquisitions in the UK in 2016.

Another factor which may have contributed is the concern that a “window of opportunity” to acquire UK companies might close, given the Prime Minister’s suggestion in the summer that all foreign takeovers should be subject to a “national interest” test.

Japanese businesses will keep a close watch over Brexit negotiations, where a more severe break with the EU could weaken the Japanese appetite for future M&A activity and investment in the UK generally.

The Japanese government has openly advocated a “soft Brexit” and expressed dissatisfaction with the lack of clarity from the UK government as to its negotiating objectives. In December, Japanese banks sought clarity from the UK government on “passporting”, without which they would be forced to move some functions away to the EU27 countries within months.

There have been a number of attempts by the UK government to assuage concerns of Japanese companies with existing UK operations, including a “secret deal” with Nissan.  However, the longer term settlement with the EU remains the main source of uncertainty for foreign investors. In that respect the UK government’s negotiating objectives remain unclear, perhaps even to itself.

This blog post was written by Nicholas Mitchell and Alec Smith of White & Black.

Disclaimer: This article is produced for and on behalf of White & Black Limited, which is a limited liability company registered in England and Wales with registered number 06436665. It is authorised and regulated by the Solicitors Regulation Authority. The contents of this article should be viewed as opinion and general guidance, and should not be treated as legal advice.

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