UK general election: private equity and advisory reactions

At the time of publication, the Conservative party, which had campaigned on a manifesto to remove the UK from the European single market and customs union, had won 318 of the 326 seats required to claim an outright majority, with just one seat still to declare. Nevertheless, according to reports in the Guardian, incumbent prime minister and Conservative leader Theresa May has struck an agreement with Northern Ireland's Democratic Unionist Party in order to form a coalition that would command a majority.

Speaking to unquote", private equity professionals provided a mixed response to the outcome, with a particular focus on the implications for upcoming negotiations to leave the European Union. Some commentators argued it increases the likelihood of a so-called "soft Brexit", while others implied the opposite might be true. This raises further uncertainty as to the passporting rights that GPs will enjoy following the Brexit process in addition to the trading relationship that portfolio companies will have with European suppliers and customers.

However, all commentators agreed the lack of an outright winner in the general election has resulted in unwelcome uncertainty, which is typically viewed as being harmful to the sector and the wider economy.

Below is a snapshot of the early responses provided to unquote" by private equity professionals:

Tim Hames, director general of the British Private Equity & Venture Capital Association (BVCA):
"This result obviously provides less stability and certainty than most people expected. Private equity and venture capital does not much enjoy political turbulence (of which it has endured a lot at home and abroad of late), but has shown the ability to work around it and will do so again this time."

Phil Sanderson, private equity partner at law firm Ropes & Gray:
"Whenever there is such a surprise, volatility is inevitable in the markets, but I would predict the current sellers' M&A market will be less impacted by the uncertainty than it might in other times be. This is because the Brexit elephant in the room still encourages sellers to sell now and there are more than enough buyers willing to discount this as a bit of local political difficulty."

Ken Terry, CEO at private equity firm Elysian Capital:
"This is a massively disappointing result that just adds to the uncertainty, which is no good for any of us. All Brexit options are back on the table, with exit without any deal at all being probably the favourite. With no-one able to take decisions and no hope of getting a compromise deal through parliament and past the strong Eurosceptics on the right, people who voted Labour or Liberal Democrat to frustrate a large May majority and her vision of Brexit have scored a massive own goal, which they will come to regret."

Sunaina Sinha, managing partner at placement agent and secondaries advisory firm Cebile Capital:
"A minority government negotiating Brexit via a coalition could mean that we are stepping away from the likelihood of the harshest form of Brexit. Whichever party forms the government, our hope would be that they strike a Brexit deal that is beneficial to the UK's small and medium-sized businesses and does not leave them disadvantaged versus their competitors in Europe."

James Ross, tax partner at law firm McDermott Will & Emery:
"In the short term, the election result will inevitably create uncertainty about the direction of corporate tax policy. However, it probably also increases the likelihood of a 'soft' Brexit, so groups worried about losing the benefit of EU directives‎ to minimise withholding tax on intra-group interest, dividend and royalty payments may want to hold fire before unwinding their UK holding company structures.

"Whatever the complexion of the new government, the corporate tax changes that were dropped before the election are likely to be resurrected, so large groups will have to grapple with new restrictions on the deductibility of interest and on the carry-forward ‎of tax losses. The reduction in corporation tax to 17% from 2020 must, however, be in doubt."

Stewart Licudi, head of European Financial Sponsors at investment bank William Blair:
"The result is unlikely to impact deal processes already set in motion before the election as the buyers and sellers will have entered into talks against the backdrop of uncertainty. However, a lack of clarity in the near term could deter foreign buyers looking at UK companies. While the long-term economic outlook for the country is improving, the added layer of political risk is a factor that makes UK assets potentially more challenging for foreign buyers compared with opportunities elsewhere over the shorter term."

Patrick Smulders, managing partner at investment firm Freshstream:
"Continued political uncertainty and lack of clarity around the regrettable Brexit decision is not positive for anyone, both in the UK and in Europe. That being said, it is business as usual for Freshsteam and we remain keen to partner with entrepreneurial UK management teams looking to grow their businesses."

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• Topics
• UK / Ireland
• GPs
• United Kingdom
• Brexit