Blog: Is the devalued pound an opportunity for IP-rich M&A?
By Stephen Robertson, founder of Glasgow-based international intellectual property (IP) consultancy firm Metis Partners.
If you’ve holidayed in the last six months, you might, like me, be feeling the squeeze from the post-Brexit fall in pound sterling. However, our “squeeze” is someone else’s opportunity, particularly if you are a corporate in the UK.
Perhaps you’re looking to exit or are seeking investment? This makes me think we should be looking beyond our shores – there are clear signs that the pound sterling exchange rate is making UK companies attractive acquisition targets.
Shortly after the Brexit vote (and when pound sterling was approximately 30 per cent lower against the Yen), the Japanese telecoms group, SoftBank, paid £24.3 billion for an IP-rich business and, at the time, the UK’s largest technology company, ARM Holdings plc. A deal that saw ARM’s shareholders receive more than a 40 per cent premium on the value of their shares, representing 24.4 times ARM’s 2015 revenues and almost 57 times after-tax profit.
Rupert Murdoch’s 21st Century Fox Inc. also took advantage of the currency discount when it revisited its plan to acquire the remainder of Sky plc.
And while Sports Direct plc reported that margins were suffering in 2016 due to the decrease in the value of the pound, the company was able to capitalise on the sale of the Dunlop Slazenger brand for £112 million to Japanese buyer Sumitomo Rubber Industries, representing a massive 28 times the brand’s pre-tax profit.
UK companies could take advantage of a suppressed pound sterling value to showcase their businesses and attract acquirers and investors from abroad. It is of major interest to me that IP assets were central to the M&A deals noted above. Companies should ensure that all their “hidden” assets are made visible to potential suitors and investors – intellectual property must be identified, protected and ideally valued prior to starting any negotiations on price.
Demonstrating how IP assets underpin the revenue streams of a business is the only way to ensure your buyer will “acknowledge” the value in them and incorporate this value in the price offered.
It is a great time to buy British! The fall in pound sterling has already attracted Japanese buyers, but with the new US administration planning to reduce tax consequences for US companies wishing to repatriate funds from abroad, it is a great opportunity for US buyers to double dip on the economic changes.