The Impact of Brexit on M&A Transactions between Spanish and British Companies

In recent years, the Brexit process has been one of the most significant political and economic events shaking the trade relations between the United Kingdom and the European Union.

This article addresses how Brexit has altered the dynamics of M&A transactions between Spanish and British companies, and what key factors the involved parties need to consider to ensure successful transactions. We will analyse the most relevant legal and economic aspects, and potential practices for adapting to this new scenario.

Brexit context and its impact on trade relations

On January 31, 2020, the UK officially left the European Union, marking the beginning of a separation process that lasted several years and profoundly altered the economic and commercial relationship between the two parties. This change has far-reaching implications for Spanish companies with interests in the UK, whether as exporters, investors, or collaborators in joint ventures.

Brexit has introduced a series of changes to trade, tax, and regulatory frameworks. Companies that previously operated under the European legal framework now find themselves in a situation of uncertainty, needing to adapt to a different legal environment.
Mergers and acquisitions, in particular, have been significantly impacted due to the following factors:

• The UK is no longer subject to EU competition rules, meaning that transactions involving Spanish and British companies must comply with both EU and UK antitrust laws.
• The end of the free movement of goods and people between the EU and the UK has led to the introduction of stricter customs controls and possible tariffs, affecting the commercial and financial strategy behind M&A deals.
• Legal issues regarding the appropriate forum for resolving disputes (both contractual and regulatory) have gained importance since Brexit, as rulings from the Court of Justice of the European Union are no longer binding in the UK.

Economic effects of BREXIT on mergers and acquisitions

One of the biggest economic effects of Brexit on M&A transactions is uncertainty. Fluctuations in the value of the British pound, instability in financial markets, and potential trade barriers have created a risk-laden environment that companies must carefully manage.
The depreciation of the British pound following the referendum and the UK’s subsequent departure from the EU had a direct impact on the valuation of UK companies. Spanish companies planning to acquire businesses in the UK have benefited from the lower value of the pound, making acquisitions more affordable in terms of euros. However, this same fluctuation has added complexity to the valuation process, as currency volatility can affect both the supply and demand for assets.

Brexit has created an environment of greater economic and political uncertainty, which has reduced the willingness of many Spanish companies to invest in the UK. The lack of clarity about future trade relations between the two blocs, coupled with the possibility of a “hard Brexit” that could increase trade barriers, has led many companies to reconsider or delay their investment decisions in the UK market.

On the other hand, access to financing in both the UK and Europe has been altered. Financing deals that were once relatively straightforward between companies in both countries now face obstacles due to regulatory divergence and the potential financial risks associated with Brexit. Furthermore, UK financial institutions no longer have access to the European single market, reducing the availability of financing for certain transactions.

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The Importance of a Communication Plan in an M&A Transaction

A solid communication plan is fundamental to the success of any M&A transaction, as the way the process is communicated can directly influence its outcome.

Legal and regulatory aspects to consider in M&A transactions

One of the main challenges that have emerged for M&A transactions post-Brexit is the need to comply with two distinct regulatory frameworks: one for the UK and another for the EU. Spanish companies negotiating with British counterparts must consider several important legal factors.

Before Brexit, transactions affecting companies in both territories were subject to the European Commission’s merger control rules. Now, cross-border transactions between Spanish and British companies are subject to dual scrutiny: EU competition rules and UK competition rules. This can lead to a longer and more costly process, as approval must be obtained from both competition authorities.

The UK Competition and Markets Authority (CMA) now has full authority to review mergers and acquisitions involving British companies, while the European Commission would only intervene in cases where one of the parties is an EU company and the transaction exceeds certain revenue thresholds. This means that Spanish companies wishing to conduct M&A transactions with British companies now have to navigate two parallel regulatory procedures, which could slow down the process.

One of the major benefits of EU membership for Spanish companies was the favorable tax regime applied to cross-border operations. With Brexit, the UK is no longer part of the EU’s tax treaties system, creating a new landscape in terms of double taxation and tax planning.
Spanish companies engaged in M&A transactions with British companies must consider the tax implications, both in terms of capital gains taxes and indirect taxes such as VAT. Post-Brexit, corporate structures and tax planning need to be reviewed to avoid double taxation and optimize tax benefits.

Another key consideration for companies involved in M&A transactions between Spain and the UK is the protection of intellectual property and personal data. Brexit has changed the way personal data is managed between the EU and the UK. Specifically, the UK’s exit from the EU means that the UK is no longer considered a “white-list” country in terms of data protection. This may cause complications for Spanish companies handling customer or employee data in the UK.

Likewise, intellectual property is affected by Brexit, as companies now need to manage their IP rights separately for the EU and the UK, leading to potential duplication of procedures and additional costs.

In summary, Spanish companies wishing to engage in M&A transactions with British companies in the post-Brexit context should pay special attention to the following:

• Early Planning: Essential for minimizing risks arising from economic and political uncertainty. It is advisable to conduct market studies and consider alternative scenarios that allow flexibility in adapting to different situations.
• Thorough Review of Existing Contracts and Agreements: As applicable rules have changed, it is crucial to ensure compliance with both European and British regulations in areas such as competition, intellectual property, and taxation.
• Expert Legal and Consulting Advice: Given the complexity of post-Brexit M&A transactions, obtaining advice from legal and consulting experts familiar with both EU and UK law is critical.
• Foreign Exchange Risk Management: Companies should implement strategies for currency risk hedging to avoid significant losses due to fluctuations in the British pound during the acquisition process.
• Tax Implications: A proper assessment of the tax implications of operating in the UK is essential, particularly regarding capital gains taxation and VAT.

Brexit has significantly transformed the dynamics of mergers and acquisitions between Spanish and British companies. The new regulatory, fiscal, and economic barriers require careful and strategic adaptation. However, with proper planning, expert advice, and diligent risk management, Spanish companies can continue to take advantage of the opportunities offered by the UK market and carry out successful M&A transactions in this new post-Brexit environment.

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