A ‘grow-your-own’ economy and the impact on UK M&A

During lockdown it seems we all tried out our green fingers and attempted to grow our own veg. My efforts weren’t very successful (a significant understatement) but it reflected society’s wider concerns about being more self-sufficient. As people worried about empty supermarket shelves and found themselves at home more, getting out in the garden and growing their own produce seemed an obvious step for many. Not so obvious was the likelihood of the UK economy going the same way.

Whilst it’s clear that the UK won’t be self-sufficient, the government does appear to be encouraging and investing in ensuring that the UK has an economy that can support the UK and then export this to the rest of the globe. This can be seen in the pharmaceutical sector, where the UK is leading the way on a COVID-19 vaccine. This is being supported by the government with additional investment in the Vaccine Manufacturing and Innovation Centre in Oxfordshire. Yet this is not just a response to COVID-19. Anyone who watched the Extinction programme narrated by David Attenborough will have been shocked to learn of the increasing likelihood of virus transmission to humans. Vaccine development and research is likely to become a key part of the world economy and the UK wants to lead the way.

This desire for the UK to have its own industries, which can then rival the rest of the world, can also be seen with technology. The government hasn’t shied away from making it clear it wants to see the UK’s technology sector grow rapidly and challenge the top tech firms. The removal of Huawei from UK 5G networks by 2027 is a result of security concerns but has identified the lack of available alternatives, particularly from within the UK. As international relationships change, having UK suppliers becomes increasingly important from a security perspective. The UK government seems determined to meet those concerns head on with talk of government support and possibly investment in tech firms after Brexit.

So, as the UK looks inward (like many other countries around the world) how will this impact the M&A market? The proposed sale of ARM may give us our first clue. Whilst the government is yet to impose any conditions, unlike at the time of the 2016 takeover by Softbank, there is still time for them to do so. The government has said so far that it is ‘looking at options’. If the government do want a home grown tech industry then how it deals with the ARM sale may give us an idea of where we are headed. At present preventing sales can only be done on limited grounds. New legislation would be needed to change that. Doing so could have the knock on effect of discouraging start-ups in the UK or foreign investment if future deals could be blocked by the government. However, government investment direct into the tech companies could give it more control and be a way of trying to keep them in the UK.

It’s likely that we will see government policy supporting the UK to ‘grow-its-own’, especially as we try to re-build the economy following the COVID-19 crisis. That in turn could see a knock on impact on M&A activity and government involvement in it. If it stays true to its belief that the UK need to grow substantial tech and other businesses, rather than see them swallowed up by those from other countries, we can expect to see significant changes in the future. However, like my attempts to grow my own veg, it could all come to nothing. Much like 2020, it seems everything and anything could happen.