Wave of new corporate regulation ‘to sound death knell’ for UK deal boom – poll

  • Three quarters of UK dealmakers believe the CMA is over-reaching to impress its political masters
  • 70% agree the National Security & Investment Act will make it harder to do deals in the UK
  • Changes to competition, state aid and national security laws risk calling time on the recent boom in UK deal-making activity, according to a new poll published today.

With major changes to the UK regulatory environment looming on the horizon, an independent survey commissioned by DRD Partnership reveals that UK dealmakers are concerned that the environment for transactions is becoming increasingly hostile.

DRD Partnership, a strategic communications consultancy with a specialism in competition and anti-trust, asked one hundred UK dealmakers* for their views on the climate for deals in the UK and how upcoming legislation and regulatory shifts might affect it. The fieldwork was conducted by Censuswide, an international market research consultancy headquartered in London.

A healthy majority of those polled agree that the current UK dealmaking environment is extremely positive, with 78% agreeing that the UK is an excellent place to deals and 74% believing that UK assets are undervalued. However, while 75% believe the Government is right to strengthen the regulatory environment surrounding takeovers, poll results show fundamental concerns about the approach it and regulators are taking.

National Security & Investment Act 2021

The study revealed pronounced scepticism on the recently enacted National Security & Investment Act 2o21, which comes into force in January. It will give the Business Secretary and his officials a say over changes of control amounting to as little as 12.5% in British companies across 17 key sectors under a mandatory regime. 70% of respondents agreed that the Act will make it harder to do deals in the UK, while 73% are convinced it will make it harder to attract foreign capital.

The Subsidy Control Bill

The poll also showed a creeping nervousness around the Subsidy Control Bill, which is currently working its way through Parliament and is designed to replace the previous EU state aid rules. While three quarters of respondents say that the bill is necessary to enable the UK to make better decisions over which industries it supports financially, 70% agree the legislation proposed creates a more complex and less predictable regime than the previous EU State Aid arrangements.

An even greater number (71%) believe that it runs a real risk of conflicting with the objectives of the Government’s Levelling Up agenda.

Competition and Markets Authority (CMA)

While 74% of respondents think the CMA does a good job in keeping markets open and preventing unfair competition in the UK, there is a growing perception that the regulator is looking to stretch its jurisdictions and remit to appease political pressure. Three quarters of dealmakers agree that the CMA is over-extending itself to impress its political masters, while 74% say that cross-border transactions involving the UK are less attractive because of the risk of CMA interference.

DRD Partnership’s Head of Competition and Anti-Trust, Jon McLeod, said:

“At a time when the UK is experiencing a relative boom in transactions, there is real discomfort among dealmakers that moves to tighten the regulatory environment may unwittingly create a hostile climate for future deals.”

On the National Security and Investment Act 2021, he said:

“These results seem to mirror the worries of many legal experts who foresee a great deal of uncertainty over how the Act will play out in practice when it comes into force in January next year. With the UK Government significantly enhancing its powers to investigate and prohibit transactions on national security grounds over and above the provisions of the Enterprise Act 2002, there is growing concern that direct decision-making on deals by the Government becomes a material risk to transactions which may be unwound up to five years after the event.”

On the Subsidy Control Bill, Jon McLeod added:

“Despite the ‘Levelling Up’ agenda and promises of post-EU exit freedom, any support for businesses by public authorities will be tightly policed by the CMA. UK politicians and officials will now be required, in many cases, to get clearance from the regulator for plans to support industry. This is very contentious as it may, for example, restrict the UK’s ability to favour ‘green transition’ industries, and make it impossible to support moves to relocate economic activity to less well-off parts of the country.”

On the CMA:

“The CMA’s broad interpretation of its jurisdictional powers – which now will include investigating mergers even when the acquirer and target do not compete – combined with its generally lengthy investigations and willingness to take an activist stance, block deals and take divergent decisions from other competition authorities, means that the UK’s regime adds a level of complexity and uncertainty to cross-border deals.”

* Dealmakers are defined as those responsible for M+As and/or competition issues and/or equity structure of their business and/or taking a stake in other businesses

NOTES FOR EDITORS

More information and copies of the full findings can be obtained by emailing info@censuswide.com

About DRD Partnership’s Competition & Anti-Trust Practice

Communications make a difference in competition and anti-trust matters. We work where political, media, litigation and regulatory issues intersect, helping clients to navigate difficult, sensitive and changing terrain.

DRD Partnership is a strategic communications consultancy focused on building value for clients and protecting their reputations at moments of challenge and change. Founded in 2012, DRD Partnership has made a rapid impact in applying proven expertise in managing reputational issues for client businesses and organisations across a wide range of domestic and international markets.

Our approach combines the experience of our senior partner team with rigorous analysis and interrogation of issues. This is to ensure that our programmes deliver meaningful impact.

Our team members have deep experience in the competition law field as lawyers, policy specialists and public affairs practitioners over many years. They have hands-on experience in dealing with complex merger applications, contentious litigation, market studies and cartel investigations, and have acted both for companies subject to regulatory scrutiny and for regulators themselves.

Censuswide methodological note

The research was conducted by Censuswide, with 100 Deal Making Decision Makers in the UK (Those responsible for M+As and/or competition issues and/or equity structure of their business and/or taking a stake in other businesses) between 31.09.21 – 08.09.21. The survey was conducted from a nationally representative section of UK adults. Censuswide abides by and employs members of the Market Research Society, which is based on the ESOMAR principles.


Photo credit to: Corporate Finance Institute

The results of the poll can be found here.

DRD’s dealmaker survey was covered exclusively in City AM on 20.09.21: “Prospective Dealmakers Put Off by Regulation”

Visit our website or LinkedIn page for more information about DRD Partnership.