With the Tory party securing a very substantial 80 seat majority in Parliament, with their “Get Brexit Done” slogan clearly resonating with the electorate, what will happen in 2020 and beyond?
Simon Ward, Partner with Springboard CF, looks into his crystal ball and makes some predictions of his own, together with measured thoughts on the outlook for the UK economy in general and more specifically the private equity market.
The election result has provided much needed clarity over Brexit and removed the nervousness over the likely impact of a potential Jeremy Corbyn Government on the British economy for business.
There is no doubt that we enter 2020 with renewed confidence and immense relief that there is now a clear way forward for the UK, but the question is whether this ‘feel-good’ factor (Boris bounce?) will significantly boost M & A activity? For some years now the private equity market’s coffers have continued to swell and, whilst there has been a resulting level of steady activity, there is potential to see much more! It is my gut feeling that we will see a renewed vigour to deal making over the next 18 months. Certainly, Springboard has a strong pipeline of potential transactions.
Looking at the outlook for individual sectors the picture is more nuanced. In terms of a consumer bounce, we will perhaps have to wait and see. Retail sales figures over the Christmas period were disappointing, but perhaps the best bellwether of a potential consumer confidence bounce will be how the housing market responds.
There should be real opportunities for those companies that benefit from public sector or infrastructure drivers, with the winds of change looking set fair as the Government looks to support and provide a real financial catalyst to the regional economies across the UK.
The UK remains an attractive proposition to overseas investors and we should see increased levels of investment over the next few years particularly from the United States and Asia.
Not everything is rosy and we should be mindful of two potential brakes on M & A activity – that of actually getting ‘Brexit done’ with a good deal for the UK (negotiations may be even tougher than anticipated) although trying to second guess the impact of this like the last three years twists and turns doesn’t feel productive…
What should be of more concern to the business founder is the unresolved issue of the future of ‘entrepreneurs’ relief. We know that Sir Edward Troup, former executive chair of HMRC, called on both the Conservative and Labour parties to abolish ‘entrepreneurs relief’ and that an elected Labour Government would have done so. In their manifesto, the Conservatives promised a review and we must now wait and see. It is to be hoped that changes are relatively small, but we may in the very short term see an acceleration of activity as founders look to take advantage of entrepreneurs relief while it lasts. In the round, however, to remove a relief that encourages wealth and job creation would be deeply disappointing.
So overall, we enter a new decade with far more clarity than has been around for many years. The UK outlook is certainly more positive than many global economies. Challenges remain but for the owner, manager or private equity investor operating in the UK there is much to be optimistic about.