Overview
Attorneys at law firm McDermott Will & Emery, said:
Aymen Mahmoud, Partner, on global markets:
The certainty achieved by reaching a deal will likely inject additional confidence into an already active market. With global credit markets significantly more liquid in 2020 than they were in 2008, we can expect the market reassurance provided by the deal to lead to increased activity in these busy markets, particularly as private equity and creditors look to bolster solid returns post-pandemic.
The announcement of a deal will be welcomed among those who might have been concerned about the regulatory impact of a no-deal outcome, though it is clear that cross-border lending and borrowing would have likely remained stable irrespective of outcome.
With ever-increasing global focus harmonization across insolvency regimes and the new Corporate Governance and Insolvency Act, market participants are likely to see greater certainty around going concern business rescue alongside a concomitant reduction in the uncertainty created by forum shopping.
Tom Whelan, Partner, on private equity:
Almost forgotten about with Covid-19 having stolen the headlines all year, it would seem we are heading towards a Brexit trade deal as we approach the end of 2020, which is welcome news, albeit that the terms are not yet fully clear as I write, and it has to be ratified by both the UK and the EU.
Even with a Brexit trade deal, there are likely to be increased costs as a result of Brexit and these will need to be factored into the operations of portfolio companies from the end of 2020 and the start of 2021, particularly if a portfolio company relies on imports from and/or exports to the EU even though these are expected to be tariff free, or has been relying on EU persons for staffing. As time goes on, it is likely that there will be greater divergence between UK and EU regulations, so leading to greater compliance costs for portfolio companies. Technology may help mitigate some of these costs, but it certainly won’t be a cure all.
Initially, there are likely to be issues for portfolio companies with delays in getting stock in and out of the UK/EU due to additional checks, new forms, lack of trained personnel, which will have an immediate impact on trading, invoicing and receiving payments, but I would hope that by the end of the first quarter of 2021, any teething problems should be well on the way to being resolved and clarity will have emerged on the true impact of the Brexit trade deal for both the UK and the EU.
In reality, like Covid-19, there will be winners and losers in all these things, and I believe that private equity sponsors will be adept at spotting where opportunities lie as a result of Brexit, and backing the winners.
