UK M&A: intervening before elevenses

A bright tomorrow is dawning for British merger and acquisition advisers and political lobbyists. The government has assumed sweeping new powers to intervene in takeovers. A complicated one-page “decision tree” meant to clarify the process shows how complicated it will be instead. Foreign bidders will need experienced, expensive local guides more than ever.

The UK M&A market was unusually unfettered until recently. At $900bn, inbound takeovers outweigh outbound traffic by more than a tenth this decade, says Dealogic. Now globalisation is on the back foot. The government has extended its scope to block or modify takeovers from three to 17 sectors. It is inconceivable that the UK would today acquiesce to a mooted foreign takeover of key defence contractor BAE, as it did in 2014.

The new rules focus on technology more than armaments, though. What do they mean for deal-doing CEOs? The impact on big takeovers should be limited at first, because few targets remain. Ministers might still intervene in SoftBank’s sale of UK chip designer Arm to Nvidia of the US.

Businesses must notify a new government unit about any transactions transferring technology in everything from robotics to cryptography. This will decide whether the purchase needs further scrutiny. New expertise will be needed to deal with the M&A bureaucrats, who will exercise their authority lest it is removed. They will have less latitude to give fast well-informed advice than the Takeover Panel, the UK’s independent bids regulator.

Politicians reflexively use new powers too. Bidders — and rivals whose market positions are threatened — will therefore end up lobbying ministers for and against far more deals. Bankers joke that any big foreign takeovers of UK businesses face a “Daily Mail test”. If it triggers outrage in the popular media, it may be harder to accomplish.

Politicians will need uncharacteristic grit to resist protectionist pressures. At the same time, they should seek to retain more indigenous technology. This has often been nurtured with public funds, then bought out cheaply by companies from countries with much tougher protections. That includes the democratic US — where defence tech group Cobham is now owned — as well as authoritarian China.

The trade-off is that even less venture capital will be available to fund UK tech start-ups, for whom a foreign sale is a common exit route.

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