We've spoken to the big global acquirers and these are the top-line responses on the impact of Brexit...
As the dust cloud from the referendum result continues to billow out across the globe, entrepreneurs in the UK are asking themselves what this means for their businesses; for the M&A plans of potential strategic partners; and for the UK’s status as a global hub for creativity and technology.
M&A: the underlying drivers remain the same
None of the major acquirers that we have spoken to have indicated any major change to their M&A strategy. However, an economic downturn might impact agencies' own performance, which in turn could impact the volume of M&A. If recession bites and performance deteriorates, willingness to sell and attractiveness of targets might be damaged. But we're not there currently, and without the global pressures of 2008, any downturn could be short term and offset by advantages elsewhere (e.g. a weak Sterling fuelling investment and the profits of some sectors).
Digital disruption and the constant reinvention of communications disciplines will continue unabated. For the companies that service the communications and customer engagement needs of global brands, the innovation needed to meet these challenges at speed requires M&A. As a result, M&A in the creative industries has in recent years seen high levels of activity and prices for key assets that are well above long term averages.
The strategic drivers of this M&A activity will not be affected by Brexit and the UK remains a centre for creative innovation and talent. [testimonial]
Although the same strategic drivers for M&A remain, as businesses are priced on financial performance, lower confidence in client spend may make buyers cautious and push risk onto sellers. This is commonly reflected in lower up-front payments, with more value deferred based on future financial performance. However, with increasing numbers of buyers in the market from Asia and the US, this has the potential to self-correct with a weaker Pound and fewer willing sellers leading to increased competition for key assets.
Uncertainty is the new norm, but right now it's business as usual
It could be many months, possibly years, before we will see a return to pre-referendum levels of business confidence in the UK. Whilst leaving the EU may have little or no direct impact on the trade of many creative and technology businesses, uncertainty surrounding the macroeconomic outlook is likely to lead to more cautious corporate decision-making in the medium term. This in turn will impact the businesses that rely on visibility of corporate marketing budgets for their own financial forecasting and growth planning. But we have been here before and once entrepreneurs adapt their mind-set to the new world order, stability will return.
Investment in talent is critical
Longer term, other European cities may seek to capitalise on the UK’s reduced European role and attract key talent away from the UK – especially the young who may see themselves as global citizens. Culture and purpose need reinforcement and investment in challenging times. In a climate of nationalism, it will be critical to pay attention to diversity and upholding your values.
Talent should remain a strategic imperative and entrepreneurs should continue to map their talent needs and invest in order to ride out the short term insecurity. Ignore the political mire and reach out to European colleagues; start fresh initiatives – creativity transcends borders and tariffs do not apply.
UK still has plenty to offer on the world stage
As the world’s fifth largest economy by GDP; an outward-looking approach (historically, at least); and with a rich heritage in creative talent, the UK still has everything to play for. Like SI Partners, many of our clients have looked beyond the UK to the US, EMEA, APAC and LATAM for global client relationships. It is these relationships rather than the nature of the UK’s relationship with the EU that will determine the long term relevance and success of the UK’s creative and technology industries.
This is an artificially created period of uncertainty, not a strategic shift in the market. The UK’s creative and technology businesses have long earned a place on the global stage through enormous ingenuity, creativity and talent. In our experience, the market is driven by strategic need, so great businesses that invest in talent and produce industry-leading products & services will continue to attract interest from investors, strategic partners and acquirers. A global outlook, agility, positivity and investment in talent will enable the UK’s businesses to weather the storm.