First liar’s advantage
In a nation whose citizens are very seldom asked to voice their opinion in a referendum, the UK “Brexit” campaign will be remembered as unprecedented in many ways: firstly, the reported reactions since the verdict of the referendum was officially declared show that many voters did not fully understand the implications of their choice. Secondly, both sides of the campaign resorted to publishing misinformation which cast a serious doubt on the overall credibility of the country’s politicians and demonstrated once again, sadly, that lies, partial statements and exaggerations pay dividends no matter whether they are rectified subsequently, because the initial message is the one that will stick in the minds of the audience.
Over the past decades, the public has been trained to seek entertainment value in the news, rather than substance. In that context, the complexity of the topic at hand was such that emotionally charged slogans were guaranteed to have more impact on the average voter than the conclusions of lengthy multi-factor analyses that failed to capture the voters’ imagination.
The failure of nationwide change management
Much of the Brexit debate was about whether Britain would be better-off in or out of the European Union. The voters who supported an exit can be split into two categories: those who did not believe the complicated macro-economic analyses and predictions that attempted to translate into pounds and pence the detrimental effect the Brexit would have on an average British household with 2.17 children, and those who felt trapped and sucked into some kind of geo-political maelstrom that would fuse all nations and regional cultures into some kind of European common denominator.
The latter group are or particular interest, in that they brilliantly illustrate a factor that is still being ignored by many politicians – or might they even be in denial? – which is that the end-vision of a united Europe may be the correct one, but that the speed at which the developments have taken place in the past decades has exceeded the pace of change to which humanity has been accustomed over the past centuries. Faced with the acceleration of change, a number of citizens would rather forego a few percentage points of economic growth for the sake of returning to an environment which they consider their own and experiencing again the comforting feeling of their close home bubble. For too many politicians and intellectuals, such people are considered to be home-spun, hermetic to any sense of progress, backward, and therefore not worthy of interest. The Brexit vote reminds us that those people had a vote, and that not enough was done in the past decades to adjust the pace of change to what an entire population can absorb.
The uncertainty during transition is worse than the final outcome
Strangely, whilst both parties focused on how Britain might look and feel in five or ten years from now, nobody spent much time thinking and communicating about the transition process a Brexit would imply.
In ten years from now, it will be difficult to ascertain how much of the nation’s economy’s well-being (or pains) are a direct consequence of the Brexit. But the pains and uncertainty that will have accompanied the extrication of a single economy from a close-knit group such as the European Union would have been easier to depict.
The truth is that nobody can say with any degree of certainty where the Brexit negotiations will be heading. Maybe some convenient modus operandi will be agreed between Britain and its current EU partners, or if not new alliances might be set up with the Americas and Austral-Asia. But in the meantime, the film is on freeze-frame and this temporary paralysis may hit hard, blocking investment, harming the recruitment of talent, stalling international research projects … Sir James Dyson, inventor of the cyclonic suction vacuum cleaner and bladeless ventilator, and vocal proponent of UK’s exit from the European Union, has indeed managed to instantly create the largest economic vacuum this nation has ever experienced.
Understandably, the new Government cannot make any commitments before having a sense of what reciprocal concessions will be granted by the other EU states, and this is not something one can rush into without serious and in-depth consideration. But once the general roadmap has been defined, we must hope things will move very fast, so as to shorten the transition phase which risks throwing the nation’s economy into limbo. The certainty of something that is not perfect is preferable to a never-ending quest for perfection. In a sense, it is a shame that the EU regulations allow 720 days to manage an exit. A shorter notice period might have forced more radical thinking and faster action.
The Swiss example only considered partly
During the Brexit campaign, the pro-Brexit movement often referred to Norway and Switzerland as being examples of another way of interacting with the EU. They refrained from describing the turmoil and uncertainty into which the Swiss economy was thrown upon refusing by referendum to join the European Economic Area in late 1992. Just as happened in Britain, the outcome of the referendum highlighted an extreme contrast between various regions of the country, creating a barrier between the language communities, as well as a chasm between the larger conurbations and rural areas. Indeed, although the German-speaking cantons which form the majority of the country were against joining the EEA, one needs to remember that the towns of Zürich, Basel and Bern were in favour of joining.
Such is now the case in Britain, with London and – more painfully – Scotland having to accept the verdict imposed by rural areas. Just as Zürich, Basel and Bern are the main engine of the Swiss economy, England’s South-East is Britain’s money machine, and yet this is the area whose political choice will have ended up being negated by the areas that indirectly benefit from that wealth creation. As a Swiss citizen, and with the benefit of hindsight since those events in 1992, I can safely assert that the fracture resulting from the Brexit polarised vote may take a number of years to heal.
And so what does this mean for M&A ?
Coming back to the core subject of this blog, which is about M&A, I have read many articles predicting a lasting fall in the number of deals, mainly because a Britain outside the EU might no longer be the centre of gravity of such business alliances. That may well come true. However, any change, for better or for worse, forces business to re-consider their options and seek new alliances. If Britain in the course of its exit negotiations with the EU decides to pursue a “lonesome cowboy” route, businesses will need to seek individual openings to the single European market by forging deals with EU-based companies, and this in turn will generate new M&A deals. And if, to the contrary, Britain’s politicians manage by some tour de force to preserve the country’s access to the single market, things might just continue (almost) as before.
What hurts and will continue to hurt for sure, is the present uncertainty. Let us hope that the summer break in sunny climates will give the new Government enough vitamin D, courage and stamina to establish clarity and negotiate their way fast toward their stated goal.