Will M and A be hit; or is it business as usual?

Last week I attended a breakfast meeting at Cass Business School, a heavyweight panel consisting of Lord Lyndon Harrison, Chairman of the Lords’ Committee For Economic and Financial Affairs and International Trade, Professor Scott Moeller, Director of the M&A Research Centre, Cass Business School, Frances O’Grady, Deputy General Secretary, TUC, Stephen Pattison, Director & CEO, International Chamber of Commerce UK, chaired by Sarah Smith, Business Correspondent, Channel 4 News debated the benefits or not of foreign acquisition of UK firms and the expected pros and cons emerged. I was interested in the relatively upbeat notion that M&As were overall positive for the UK and hold strong benefits going forward, despite the economic situation we all now find ourselves. As usual, the disaster at least in PR terms, of the Cadbury Schweppes takeover by American based Kraft Foods was often muted, of the risks concerned with foreign takeovers, as well as concerns around energy companies owned by French and German companies and their pricing policies but with all this taken into account, the UK balance sheet of benefits still remains strong.

In many other countries in Europe there are poison pills and Government protection preventing foreign ownership and this is remarkable as you would expect the Eurozone to not allow state protectionism. The UK is therefore quite at odds with what many people like to present as a closed, protected market as  the UK practices the ideals of the European single market, where other states do not. Protecting any company or business by building high walls is eventually going to fail and it would be a good move by Brussels to begin taking down these high walls and putting up signs that they are open for business. This has certainly benefited the UK in the past and in these austere times could be beneficial across Europe.

Will the current economic disaster stymie M&A? Well it might if Governments become conservative in their outlook and protect rather than become expansionist. However, there is strong historical evidence that economic downturns actually increases M&A as companies look for bargains and others look to merge as a protection against falling prices and demand. Collaborations can be forged between companies to increase their market coverage or product lines that often become a forerunner of full blown mergers.

For example foreign ownership of football clubs in the UK created the Premier League, which is attracting worldwide audiences and huge sums of sponsorship as a result. Television rights are set at an enormous value, which have made many clubs to become rich in terms of turnover. Sadly most revenue slips straight through their business to their players leaving clubs in a difficult management position. However, the prospects and potential of English football clubs has attracted some of the wealthiest people on the planet. This has surely been good overall for the UK, so despite the economic situation the UK is still reaping the rewards of an open market for M&A and this is sure to continue in the future. Is this something Europe should follow? The future of the European Securities Markets is being discussed at the next Post-Trade Forum and it will be interesting to hear what Nicola Horlick, Kevin Milne, Hiranda Misra and Brian Winterflood have to say on this topic.