After months of speculation, talk of a “soft Brexit” finally look to have gone the way of the fabled “soft landing”. With UK prime minister Theresa May confirming the UK is to leave the single market, followed by intimations that a hard Brexit will meet a hard response from the EU, the impact on Ireland is also best described in one word – hard.
“To date the only real effect of Brexit on Irish business has been limited to the devaluation of sterling,” says John Higgins managing partner of EY’s Cork office and head of transaction advisory services. “Those businesses getting paid for their product in sterling have less than they had before, and that will be the main impact for the next two years.”
However, he says it’s not all bad news. “The devaluation of sterling alone has made the UK more attractive for Irish companies looking to establish a foothold there or grow their presence. Now is the right time to do that.”
UK businesses may also be interested in establishing a base here. “I don’t think Brexit will have a major impact on transaction activity into Ireland in 2017. Certainly, there will be no deals done that wouldn’t have been done anyway, but over the longer term, three or four years, if you are in the UK and exporting to Europe you might be more likely to think about looking at doing business in Ireland, and there may be businesses in Ireland that become attractive to UK buyers as a result.”
Reacted positively
The impact of the Trump regime in the US pales into insignificance beside Brexit. “I think Trump is not going to be as bad for business as expected – he could even be pro-business – and certainly the market has reacted positively,” says Paul Keenan, executive chairman of Capnua Corporate Finance.
“The issue there is for companies depending on foreign direct investment, and those companies, whether they are building plant over four or five years or developing a drug over 20, are not thinking in terms of four-year presidential spans.”
Brexit will be more durable and will have an almost immediate impact on trade sales of Irish businesses that have significant UK exposure. This may provide a fillip to management buyouts, of which there have been relatively few in recent years. “The management team is the one that holds the UK relationships, they are best placed to gauge the impact of Brexit, and so may take a different view than a trade buyer would about the future.”
International deals involving a regulatory component are also likely to falter following Brexit, at least until buyers can see the lie of the land.
“If you take the energy space, for example, which at the moment sees countries covered by EU regulations. We no longer know what the regulatory aspect might look like,” says Michele Connolly, partner and head of corporate finance at KPMG.
Uncertainties
The renewables sector, which last year saw a number of deals, may hold off until uncertainty is resolved in relation to tariffs. Those deals that are pursued in the face of such uncertainties will see a view taken by buyers on what the pricing impact is likely to be and factor that in accordingly, most likely driving values down.
Yet Connolly reckons there is room for optimism, not least because we have been through worse.
“Irish companies had to get used to uncertainty over the past six or seven years as a result of the recession and businesses can’t stand still. They can’t wait to see what the future will look like, they have to find a way to factor in change, price for uncertainty and carry on. One thing the recession did do was teach Irish businesses to lift their heads and look to overseas expansion. In many ways we are in better shape now to look globally, in response to Brexit, than we would have been if we had not had the recession.”
