Less attractive for M&A

Britain losing appeal as ‘gateway to Europe’

Ally ScottBrexit worries have seen British companies become less attractive to overseas investors who have previously viewed the UK as a gateway to Europe.

Despite the weaker pound investors are less inclined to pursue mergers and acquisitions in the UK.

For the first time in seven years Britain has fallen out of top five countries favoured for such deals.

Nevertheless, 62% of the executives surveyed in EY’s 15th Global Capital Confidence Barometer remain positive about their UK operations.

Investors in India, Russia and Europe still favour the UK, although there is negative sentiment from countries which previously treated the UK as a gateway into Europe including 82% of Japanese respondents, 56% from the US and 53% from China. 

Ally Scott (pictured), EY partner and head of transaction advisory services in Scotland, said: “Brexit may not have created the initial economic turmoil some feared; but investment uncertainty is clouding the UK’s longer-term economic prospects.

“Responses to our survey highlight the size of the Government’s task as it starts to reposition the UK. For businesses, reassuring overseas investors and setting out clear trade priorities with favoured nations is a priority.

“The UK’s strong fundamentals mean that companies don’t look ready to run for the exit. Nevertheless, smaller inflows into new and existing operations are concerning in the context of falling domestic investment and the UK’s negative current account.”

Brexit uncertainty and access to talent top UK worry list

EY’s Barometer shows 87% of UK respondents still seeing the UK economy as stable. But, with domestic politics and currency volatility topping their list of concerns, the fallout from Brexit is clearly at the top of UK executives’ agenda, says the report.

Recruitment and retention of talent emerge as the second biggest post-Brexit anxieties for UK businesses. 92% of UK respondents expect Brexit to affect their ability to hire skilled workers with 69% concerned about retaining skilled employees. 

Mark Gregory, EY’s chief economist, said: “When we carried out the survey this summer, most companies believed sterling would recover lost ground. Companies can’t afford to be complacent.

“We expect recent sterling weakness to continue. In which case, we should see greater investment in import substitution by UK business to help head off high import costs and in export capability to exploit the low pound – either through capital investment or M&A.”

Accelerating the UK’s digital transformation

According to the Barometer almost a third of UK respondents said they expected their investment levels to fall by over a fifth in the next year. And yet, almost half of UK respondents said previous attempts at automation were unsuccessful and 35% still duplicate manual and digital processes.

At the same time business leaders are looking to increase their focus on the exploitation of digital technology and analytics (27%) to help protect and grow their businesses in this slower growth post Brexit environment.

The proportion of UK businesses looking to transact has also fallen. Of the UK executives questioned, 48% intend to pursue an acquisition in the next twelve months – down from 59% six months ago and below the 57% of global respondents looking to transact.

Nevertheless, M&A appetite remains above average due to the strong imperatives to complete deals, and 40% of UK respondents are looking to acquire start-ups with digital technology while 30% are looking to acquire talent.

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