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Brexit uncertainty hits deal making and corporate growth

New data has shown that the ongoing uncertainty over Brexit is having a significant impact on both corporate activity from the EU and company growth in the UK - although acquisitions of UK companies by US and Japanese buyers is increasing.28 Jan 2019

Research carried out by Pinsent Masons, the law firm behind Out-Law.com, showed the number of acquisitions of UK companies by foreign buyers dropped 11% in the last quarter of 2018 to 142, down from 159 in the same period in 2017.

Acquisitions of UK companies by EU buyers fell 22% from 55 to 43 in the last quarter of the year, while the number of acquisitions by EU buyers across the whole of 2018 fell by over 12% from 253 in 2017 to 222.

Corporate expert Andrew McMillan of Pinsent Masons said: "Fears over the outcome of Brexit have intensified, choking bids for UK companies."

"European buyers of UK companies have been particularly skittish in recent months which likely reflects the greater exposure they already have to the potential fallout from Brexit," McMillan said.

Meanwhile the Confederation of British Industry (CBI) said the balance of private sector firms in the distribution, manufacturing and service sectors reporting growth in the three months to January 2019 stood at 0%. This is the weakest reading since April 2013.

The CBI said the stagnation in activity reflected a combination of falling services business volumes, unchanged distribution volumes and slower manufacturing growth. Within distribution, retail volumes have declined for three consecutive months.

The body said it expected limited private sector growth in the current quarter of up to 6%, with some growth in distribution volumes and manufacturing but unchanged services activity.

CBI chief economist Rain Newton-Smith blamed the stagnation on "Brexit deadlock, diverted investment and low business confidence", and called for politicians to act to prevent a no-deal Brexit.

However the Pinsent Masons research showed that while confidence in the UK from the EU has slumped, acquisitions by US and Japanese buyers increased in the last quarter of 2018.

The number of acquisitions by US buyers increased to 65 in the last three months of 2018, up from 64 in the fourth quarter of 2017, and acquisitions by Japanese buyers increased to five, up from just one, over the same period.

McMillan said US and Japanese buyers were seeing bargains in the UK, where EU companies were seeing risk.

"US and Japanese buyers do not appear to be scared of Brexit - they are calculating that a rational solution will be found. This is a real vote of confidence in UK companies, supported by tailwinds from a strong dollar and yen against sterling," McMillan said.

"Further weakness in sterling and equities could lead to a rally in M&A deals in 2019 as foreign buyers look to pick up UK companies at a discount."