Politics, politics, politics – all of a sudden it’s everywhere! I cannot remember ever having had so many lively discussions about politics with investment bankers and transactional lawyers as in recent months. These people, whose interest usually only extends to where the next transaction could be found, are suddenly passionate about the expected results of elections and the policies of the election winners.
“Protectionism leads to poor economic development, human rights violations and eventually to international conflicts” said a leading international investment banker recently. It’s straight talk, investment bankers sure don’t beat around the bush – protectionism is the path to war.
At the same time the Economist predicts that the success of multinationals that has continued for decades may be turning, or may in fact already have turned before Trump and Brexit. Trump doesn’t really represent new economic thinking, he is merely part of a protectionist tendency, which we have already seen in many countries where populistic movements have gained ground and in the United Kingdom and Russia.
Perhaps globalisation has come to the end of the road…
It is said that about 40% of M&A-transactions in the world are cross-border deals. This percentage is expected to remain on the same level, despite the protectionist tendencies. If walls are built against international trade, international companies may need a presence on both sides of the wall. Countries are getting more restrictive against foreign purchasers of businesses. For example in Germany, we have seen the first measures taken against Chinese purchasers of German companies. At the same time China is tightening outbound M&A approval processes to protect its currency reserves.
Protectionism and the increase in regulation affect cross-border transactions and lead to lengthier M&A processes. A long M&A process leads to a higher degree of uncertainty whether a deal will actually be completed. When the completion of a large transaction takes nine or even eighteen months, unexpected things are bound to happen on the market and in the world, which may affect the willingness of the parties to complete the deal that seemed optimal at the time of signing.
Finland is an open and export driven economy. That is not very trendy these days. About 60% of Finland’s foreign trade is with the EU and the rest with other countries, such as Russia, the US and China. From an economic point of view, Brexit is a bigger challenge to Finland than Trump. UK’s position in the EU and London’s dominating position as the European capital of finance and capital markets mean that Brexit is a dramatic event for the EU and a threat to our economic development. The fact that EU rules are embedded in English legislation and its structures brings an enormous challenge to the financial system in a situation where London no longer is situated in the EU. At the same time, the imminent fall of the Transatlantic Trade and Investment Partnership (“TTIP”) negotiations is a serious set-back for the potential development of trade between Finland and the whole EU, on the one side, and the US, on the other.
All this political drama right in the midst of a previously unseen technology revolution that quickly changes the entire landscape for many businesses! We are in fact experiencing two opposing trends, protectionism versus new revolutionary technologies, such as global platform based business models. The value of such business models typically increases with the number of their network participants. What we’re seeing is a battle between ever increasing collaboration and isolationism!
“We are in fact experiencing two opposing trends, protectionism versus new revolutionary technologies, such as global platform based business models”
Since companies and law firms cannot change or control these developments, we should jointly look for the opportunities in these changing times. If you are puzzled by the effects of new policies and technologies on your business, give us a call. It is likely that you’ll find a friend wrestling with the same challenges.
I am, as always, an optimist – protectionism can never win over constructive cooperation!