Merger & Acquisition Considerations: Is Brexit an exit opportunity?

01 August 2016

01 August 2016 by MHA MacIntyre Hudson

Groups are currently able to take advantage of EU provisions in order to undertake reorganisations or mergers of their European operations on a tax neutral basis. While these rules are incorporated into UK tax law and may continue to apply to reorganisations undertaken by UK companies, it is likely that the local rules in the remaining 27 EU member states would no longer extend to include the UK.

Bearing this in mind, if businesses are considering acquiring an EU business, it may be prudent to move more quickly before Brexit negotiations are completed, although any continued Pound Sterling weakness will mean that such an acquisition could prove to be costly in the short to medium term.  For exporters, these costs may though of course be outweighed in the longer term by the benefits of continued direct access to 550 million customers in the 27 EU member states.

Customs duties work both ways; it is likely that the UK will impose duties on EU imports if a comprehensive free trade arrangement with the EU cannot be maintained. Therefore, European businesses may look to acquire UK businesses to protect or expand their UK trade.   So UK business owners, who may be considering an exit in the next few years, may want to bring the sale forward by transacting with an EU-based competitor before the Brexit negotiations are finalised.  With Sterling currently in a position of clear weakness, overseas buyers will be keen to strike while the iron is hot given that acquisition prices could be very favorable when translated into Euros or US dollars.

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