Fri, Jul 8, 2016

Businesses Must Embrace the Vote to Leave the EU

The events of June 23 threw the UK into disarray. Businesses around the world will be impacted by the result of the EU referendum vote but those that can adapt and respond to the changed environment will prosper. 

When/if Article 50 is served, the UK will begin negotiations with the EU to exit and at this point businesses should begin down a path, if they’ve not already, to adapt for the next phase in their evolution. 

Change will not be instantaneous. There will be a period of negotiations to determine the nation’s fate of which we are still uncertain. There are a couple of familiar scenarios already in place including the Norwegian style agreement, where the UK could become a member of the European Economic Area (EEA) allowing a level of free trade, or there is the Swiss model, where the UK would neither be a member of the EU nor the EEA, but have a number of free trade agreements allowing the flow of certain goods into the EU. Alternatively, there could be something completely new as a result of the negotiations. Either way, businesses must be prepared. 

It is likely that businesses have delayed making any significant decisions on acquisitions or investments due to the uncertainty surrounding the next phase following the exit vote and the political fluctuations that have trailed. However, is now the time to begin thinking about the structure of your business, whatever the outcome? The answer has to be a resounding yes. It is important that British businesses have a plan in place as the UK negotiates an exit agreement, even though these negotiations may continue for many years. 

While we wait for clarity relating to the UK’s trade profile with the EU, what must remain front of mind during this period is financing. Keeping abreast of increased costs of foreign exchange and volatility with interest rates pertaining to the pound Sterling, Euro and U.S. Dollar exposures is essential. The vote result may create problems with existing financing arrangements e.g. weaker trading performance leading to covenant issues, so a negotiation with existing lender(s) or exploration of refinancing options will be a worthwhile exercise. Working in partnership with a debt advisor, with significant transaction experience and close relationships with banks and alternative lenders, will be important. There is an opportunity to make more commercially astute acquisitions after which raising flexible financing quickly can be considered. Duff & Phelps is already advising a number of companies with foreign exchange risk because of their trade profile. 

On a more personal note, we are delighted to be back leading the Duff & Phelps restructuring practice at a time when our clients need us more than ever. We would like to take this opportunity to thank you, our clients and our colleagues, for the enormous amount of support you have offered us over the last 18 months. We are relishing the opportunity to move forward and return to client work at such an interesting and challenging time for UK corporates.

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