PE executives shocked by Brexit but widely divided on its effects

Many private equity executives and bankers say they were shocked by the Brexit, Britain’s decision to leave the European Union, but opinions ranged widely about how and how much the move would affect M&A, fundraising and the world.

Some suggested that it might spur deal-making in the United Kingdom and Europe as uncertainty could weigh on deal pricing.

On Friday British Prime Minister David Cameron said he would resign after the historic referendum. More than half, 52 percent, of Britons voted June 23 to leave the E.U., NBC News reported.

“It’s somewhat crazy that a vote of this consequence was based on a simple majority,” one LP said. “Cameron’s statement that ‘the British people have made a very clear decision to take a different path’ rings hollow with a vote of 52 to 48. It’s not clear at all but obvious that it’s pretty divided.”

One banker told Buyouts he was not sure anyone understands Brexit’s impact because the result was unexpected.

“The market will overreact in the near term and you could see an impact on U.K.-based M&A targets and processes,” the banker said. “Longer term, I am not sure it changes much because the U.K. was not fully integrated into the rest of Europe.”

An executive who said he was surprised by the vote said Brexit represents “a lack of serious thinking in many ways. It’s reactionary, not evolutionary.”

Brexit introduces “tremendous uncertainty,” a GP said. “Right now it’s obviously worse for Europe but this potentially significantly impacts the U.S. as well.”

The odds of a recession in Britain, the E.U. and globally rose with Brexit, some private equity people said.

And a PE exec who lives in the U.K. but works for a U.S. firm said simply, “Things will be quiet now for a while is my guess.”

The Brexit news caused global financial markets to plunge. The pound fell as much as 10 percent against the dollar, Reuters reported, while the euro slid 3 percent.

More than $2 trillion was wiped off the value of world stocks while big banks in Britain dropped as much as 30 percent at one point, Reuters reported.

Bloomberg News reported that Telefonica SA was considering delaying the IPO of its Telxius Infrastructure unit and the possible IPO of its U.K. wireless unit O2 because of Brexit fallout.

At the same time, the London Stock Exchange and Deutsche Boerse vowed Friday to press ahead with their merger despite the Brexit outcome, Reuters reported.

Due to the Brexit and to the U.S. election coming in November, fundraising is in a holding pattern, an LP said.

Some think the vote could actually spur M&A but of U.K. companies as targets. Brexit “effectively put the U.K. up for sale,” said the executive who said he was surprised by the vote. “Essentially you can buy anything in the U.K. at a discount right now.”

U.S. companies will be stronger than their European counterparts due to Brexit, the GP said. “This could represent a buying opportunity for them, and U.S. buyout firms, to buy European companies.”

Action Item: To contact Prime Minister David Cameron send an email here.

Supporters of the Stronger In Campaign react as results of the EU referendum are announced at Royal Festival Hall in London on June 24, 2016. Photo courtesy of Reuters/Rob Stothard