Brexit

How did Brexit Impact Investment?

Everyone wants to know what trade parameters to adopt so companies are getting increasingly desperate to know whether they will be trading under EU laws, WTO guidelines or something else completely. Investments in the UK fell by 30% in the 3 years to the first quarter of 2019.

Is M&A subject to EU law?

For businesses and law firms M&A isn't subject to much EU law its more subject national law, there are some specific areas of M&A that may be affect like competition or maybe some contractual provisions

Why is Ireland attractive as an alternative legal hub?

Ireland has been promoting itself as an alternative legal hub pointing out that the enforceability of UK court judgements in the EU may be called into question in the future thus making dispute resolution in irish courts arguably more attractive.

How will Brexit impact Dispute Resolution in the UK?

It most likely won't. There is a respect of the UK legal system. Rival courts will be unlikely to be able to challenge to commercial courts in London as they lack the same kind of expertise and reputation

How can lenders protect themselves post Brexit? Is Brexit going to impact the demand for loans and the ability to have them paid back?

Lenders need to make sure they have well drafted clauses in their contracts which provides as much protection as possible and limits as much risk as possible. They need to think about whether payments from borrowers are coming from Europe and whether they'll be challenged on their ability to get this money such as tariffs, or delays.

What are passporting rights?

Passporting is a way for financial service firms to set up shop in different EU member states, without needing to get a seperate authorisation or license in that member state. One member state can essentially trust the standards of another member state, they can trust that a business or financial services firm that has received authorization in one member state is suitably regulated and makes it sufficient to operate in another member state. Once they have authorisation from their home state they can apply to serve EU clients across other member states.

How did Brexit impact the pound?

The pound sterling has weakened roughly about 10-15% against the dollar and euro.

How are Non-EU businesses treated with passporting?

They cannot rely on passporting, these non-Eu businesses need to get authorisations based off the particular requirements in each member state and even then it's likely that they will only be able to provide service to that member state

What should lawyers do when drafting the acquisition agreement to account for any uncertainties due to Brexit?

They may want to factor in certain clauses and include certain protections to cover the uncertainties related to Brexit.

What strategy does Slaughter and May use in regard to how they build relationships?

They use their best friend networks in many jurisdictions instead of opening offices in different places.

The legal sector is extremely competitive and brexit may be depressing legal budgets and fees even more, so to secure legal relationships or keep existing ones law firms need to find other ways to demonstrate value for the clients, what can they do?

- Invest in AI to add value to clients to complete high volume time sensitive work - Invest in niche practice areas to prepare for Brexit, stronger trade practices, regulatory teams

Why are firms choosing to operate in Ireland?

- Retain access to EU & following companies moving there - Common language and legal system - International litigation hub

What has been the impact on Brexit so far?

- The number of workers from EU countries has fallen significantly since the referendum and this has led to both skills and staff shortages in industries such as retail, hospitality, construction, manufacturing and agriculture where cheap labor has been required in volume and it has also played a part in putting upward pressure on wage levels in these areas. Travel lodge has come up with an interesting solution to this as its planning a major recruitment drive of students by offering them contracts that let them work around their studies - Investment has also been affected by Brexit, businesses generally do not like uncertainty and this has resulted in many major investments being put on hold, as the CEO's have been waiting for more clarity. -

Will it be harder to raise money as a company with Brexit?

2019 saw IPOS have their slowest start to any year for a decade. Raising finance through an IPO is a big decision already, but with Brexit it would be unlikely for investors to want to buy shares during this uncertainty so it'll be hard to raise money. After Brexit is complete I believe the London stock exchange will bounce back as they have excellent reputation and still will probably have similar regulations to the EU.

Outline one of the factors leading up to Brexit?

A big turning point was in 2004 when the EU had its largest single expansion and 8 new Eastern European countries joined the EU. The issue of immigration was one of the key reasons to vote leave and this was essentially down to the Free Movement of People.

What is a hard Brexit?

A hard Brexit is another way to say a clean break from Europe. That means Britain giving up membership of the EU's single market, an arrangement that enables the country to trade freely with its European partners without restrictions of tariffs. Supporters of a hard Brexit want the freedom to set up their own trade deals and rules. The problem is that drawing up its own independent trade agreements will take a lot of time and, in the meanwhile, force the country to use less favorable World Trade Organization rules.

How will Due Diligence be handled considering Brexit?

As a buyer is investigating a company the buyer will want to note if a specific target company is exposed to risks relating to Brexit. Some questions to consider during the due diligence process are; Does this company rely on passporting or licencing that gives them access to the EU? Could contracts be terminated because of Brexit? Will it impact the employees or the staff? So will they need to relocate? Will there be redundancies? In these cases the buyer will have to think about employment claims that could be made Is the company relying on EU funding?

What is the role of law firms in advising financial services firms during brexit?

Bank restructuring; Theyll be helping banks to relocate and assist banks in establishing subsidiaries and securing licenses. So they will advise on the national law of particular jurisdiction. Relocating staff; With this comes negotiating and drafting employment contracts. So lawyers will be advising on staff transfers and employment issues. So they want to make sure theyre in compliance with employment law but also minimise construction. This could be checking whether existing contracts provide for relocation or string compensation packages to attract staff to move. Contractual advice; Lawyers will be updating contractual provisions and advising on legal implications of Brexit. So lawyers will be here to help businesses amend and draft contractual provisions that help the firm manage its risks while still making sure that the business can achieve its business objectives.

Why may US firms need to increase their breadth of practice areas after Brexit?

Having a strong competition department for large M&A deals is very important post Brexit. US Firms haven't really focused on competition so they should invest further into this department. This could be an opportunity for UK firms, who can capitalize on their competition sector.

What kind of risks does Brexit impose on commercial contracts? Provide both Legislative and Contractual Triggers.

Legislation Risk; Lawyers need to review client contracts for change of law clauses which are often present in long term contracts and they provide for what happens in the event that legislation changes, for new contracts the parties may want to include one. Contractual Triggers; Force Majeure: There are certain clauses in a contract that could be triggered due to Brexit for example force majeure clauses which are clauses included in contracts that cover unforeseeable events that prevent a party completing its obligations in a contract, ie natural disaster.

What is Mifid II?

MiFID II is a legislative framework instituted by the European Union (EU) to regulate financial markets in the bloc and improve protections for investors. MiFID II will ensure fairer, safer and more efficient markets and facilitate greater transparency for all participants.

What has been the impact of Brexit on Professional Services(i.e. law firms, accountancies, etc)? What are they doing to combat these changes?

Professional services include law firms, accountancies, and consultancy firms among others. Many companies are looking to increase their presence in Europe because of their fear that they will lose passporting rights that allow them access to clients across Europe. This has led to some law firms opening branches in Ireland for instance Pinsent Masons opened a Dublin office in late 2017 and there have also been some mergers with Irish firms such as Fieldfiesher merging with Mcdowell Purcell.

What has been the impact of Brexit on Banking?

Profit margins have fallen across the board in banks like Lloyds, Barclays and Santander. Customers are unlikely to take out mortgages or borrow large sums if they're feeling uncertain about the economy, so its unlikely that this situation is going to get significantly better until there is more clarity on Brexit. Competition between banks in mortgages is also intense as banks are fighting over fewer borrowers.

How can financial service firms respond?

Relocating - Establish regulated businesses inside the EU. That could be converting an existing branch or establishing a new subsidiary within the EU it can then apply for passporting there. The issue with relocating is that it's expensive, moving staff, or hiring locally. An example would be Bank of America Merill lynch who has spent up to 400 million dollars moving around 400 people and operations out of the UK. they have also obtained a new paris licence and increased the number of jobs across Dublin and Paris. Equivalence Regime - This depends on whether the UK can secure a trade deal with the EU, but another possibility is relying on the equivalence regime which states that in certain cases the EU recognises that a foreign legal or regulatory regime is equivalent to the corresponding EU regime. It's basically saying that the regulatory standards are aligned and that they're good enough that the firms that have permission from their home state can continue to provide services to EU clients. This will be especially suitable on day 1 of Brexit as the UK will have exactly the same standards as the EU as they have been complying with EU rules until then. However relying on equivalence would mean the UK could not change its laws too far for the fear of risk of losing this equivalence. The EU can redraw equivalence decisions in as little as 30 days notice. Also equivalence does not apply to as many areas as passporting such as banking regulations. It's also untested there are not precedents for this so there's still uncertainty there even if we do get equivalence.

How does competition impact certain M&A deals?

So if a Merger or Acqusition reaches certain thresholds so essentially when the companies combined and it reaches a particular amount of revenue or it becomes dominant in buying or selling a particular good or service if thats the case it could be subject to competition regulation, the aim of this is to essentially promote competition in the market, rather than power being concentrated in the hands of a few large companies because in that case it would be easier for large companies to abuse their positions to negatively affect consumers. So if certain thresholds are met in the UK its the responsibility of the UK competitions and markets authority to investigate.

How can competition be affected in regard to M&A after Brexit?

The issue Post- Brexit is that it could lead to duplicate investigations or parallel investigations by both the EU and the UK, this could mean less legal certainty, and more costs and time to get a deal through, and if they come to different decisions that could cost even more time and more issues.

How could Brexit force companies to become more efficient?

They'll be more of reviewing contracts looking at how to minimize expenses and potentially restructuring their business so they are more resilient to external harms

What is a soft Brexit?

This term is used to refer to Britain remaining closely aligned to the EU by retaining some form of the bloc's single market.Such a scenario would minimize disruption to trade, supply chains and businesses in general. However, there is a major sticking point: the EU has demanded that access to the single market can only be granted if all its principles, including the free movement of people, are respected. Supporters of a soft Brexit have called for a deal similar to what Norway has with the EU. Norway is a member of the single market, but in return abides by the free movement rules, which the UK is against because they hate immigration.

What are some impacts(good and bad) Brexit can have on M&A overall?

Uncertainty; Uncertainty can steer away investors or buyers looking to make acquisition as they are uncertain about the future of the UK. Targets; Brexit could also change the type of companies businesses acquire, for instance businesses may start simply targeting companies in the EU Fall in Pound; Fall in the value of the pound could be a good thing for M&A as it makes acquisitions of UK companies from overseas firms relatively cheaper and therefore more attractive. Post-Brexit: With less risk investors and buyers will feel more confident making decisions. Also they probably have a lot of money being held(dry powder)

Which sectors are the winners and losers from brexit?

Winners: Those giving professional advice have been the biggest winners because where there is uncertainty there is money to be made. The service industries lawyers, accountants, etc are among those to have benefitted from advising nervous clients about the impact of the Mifid II and GDPR in the last few years. The warehousing sector has also done quite well, this includes companies like Big yellow and Access as manufacturers and supermarkets are among those who have decided to stockpile products to ensure that they can continue doing business even in the event of a hard Brexit. Given the increased demand due to Brexit they can raise up their prices and make more money. Losers: UK Real Estate has lost out because of the economic uncertainty due to Brexit. People have opted to take a wait and see approach and decided not to spend a large chunk of money at an uncertain time.

Will Brexit cause London to lose its position as a leading global financial centre? Gives reasons why it could and why it couldn't

Yes; Loss of Passporting & Bank Relocation; The reason London became such a leading global financial centre is because foreign banks liked to use London as a gateway into the EU. These foreign banks, with Brexit are most likely going to leave and move operations to Ireland, Paris etc. Loss of talent; Another key part of London's attraction is the highly educated workforce. No; English Law; Also there is the rule of English Law in contracts, as english law is very popular for international contracts, because it is based on precedent it is more predictable for parties and they can go off past cases. This means london will still be a great place to do business, invest and obtain financial services post brexit. English Courts; Also there is rule of the English Courts, these courts are well respected internationally because they have highly experienced lawyers as judges who regularly deal with complex disputes. For business this means that cases are processed efficiently and they can trust the judges presiding over their case. Also there is the common language and convenient time zone.