Brexit cost UK place among top five destinations for investment

The financial district of Canary Wharf in London © Kevin Coombs
Britain has lost its spot in businesses’ top five locations for investing due to the growing uncertainty following the decision to quit the European Union, according to a survey of executives conducted by consultancy firm Ernst & Young (EY).

The UK dropped from second to seventh best country for mergers and acquisitions (M&A), behind the US, China, Germany, Canada, France and Japan. This is the first time the country is out of the global executives’ top five destinations of choice, according to EY.

The survey suggests investors are worried about geopolitical issues, including the rise of nationalist governments globally and currency fluctuations that make international mergers and acquisitions more difficult.

“Brexit is a prominent example of the rise of geopolitical changes that are adding complexity to cross-border investments,” said Steve Krouskos, the advisory’s global head of transactions, adding that in the longer term Britain would bounce back as a top M&A destination of choice.

“I don't see a blackout coming,” Krouskos said, stressing that the short-term uncertainty was giving investors pause for thought.

There’s been about $208 billion in M&A involving British firms announced this year, according to data compiled by Bloomberg. The figure dropped 55 percent against the same period a year ago. At the same time, spending on M&A deals worldwide fell by about 20 percent to $2.2 trillion from last year’s record.

The EY survey said that 57 percent of companies are still planning to pursue deals in the next 12 months, as the fragile environment will probably push companies to turn to M&A to produce growth.

Political uncertainty is an impediment, not a barrier to M&A deals with companies continue to take a long-term strategic view on investments,” Krouskos said.

As for the UK, two of the country’s three largest deals of 2016 were announced in the second half of the year. In the summer, Japan's SoftBank agreed to acquire British chip designer ARM Holdings for £24.3 billion ($30 billion). In September, UK-based Micro Focus International agreed to merge with Hewlett Packard Enterprise Co. in a deal valued at about $8.8 billion.