Attorneys from France, Spain, and Portugal weigh in on the effects that Brexit may have on their respective countries.


Charles Cardon, Carmen Maria Mozun Munoz, Tiago Ferriera de Lemos, and Lia de Pessoa Negrao

December 20, 2016 12:00 AM

(1) The Impact on French M&A Deals

On June 23, 52 percent of U.K. voters voted to leave the European Union. What happens next is far from certain and will significantly depend on the rules governing the relationships between the U.K. and the EU post-Brexit (which is not expected before the end of 2019). The implications for global M&A markets are, accordingly, equally far from certain. The volume of M&A transactions undertaken in the U.K. in the six months prior to the Brexit vote was down 70 percent. Against this backdrop, the only certainty is uncertainty, at least for the short term.

Takeover Rules

After more than 15 years of negotiations, the EU takeover directive (EC 2004/25), dated 2004, establishes the principle of determination of a single authority to supervise a tender offer where a target has different listing places in the EU or does not have its registered office and its listing place in the same member state. This framework enables cross-border takeovers and provides a clear set of common rules, including mandatory takeovers and squeeze-outs, which apply throughout the EU. The Brexit should take the U.K. market back to the pre-takeover directive situation and would create uncertainties about the determination of the competent authority to supervise cross-border offers involving the U.K. This will restrict acquisitions or combinations with European companies registered and/ or listed in the U.K.

Capital Markets

To complete public offerings or admissions to trading in several member states, the directive prospectus (EC 2003/71) provides for a so-called “passport process.” A prospectus approved by the home member state of the issuer is valid for the transaction in all the member states in which the local competent authority has been notified. Under this “passport process,” an issuer with a prospectus approved by an EU member state does not have to prepare a specific U.K. prospectus for cross-border offerings or admissions to trading involving the U.K. Similarly, a U.K. issuer or a non-EU issuer that has selected the FCA as its competent authority in the EU can use a U.K. prospectus for a cross-border capital market transaction in several member states. As a result of the Brexit, the passport process will no longer apply for U.K.-based issuers nor for transactions carried out in the U.K. by European issuers, save those that might be settled on during the Brexit negotiations, which appears highly unlikely at this stage. This will significantly restrict access to the European market for U.K. issuers’ capital market transactions.

Regulatory Clearance

Foreign Investment Authorization

Under French law, an acquisition by a non-French entity of businesses in “sensitive” areas (activities likely to impact the public safety or national defense interests such as arms manufacturing or cryptology systems) requires a prior authorization from French Minister of Economy. French law makes a distinction between EU investors and non-EU investors, for which the scope of “sensitive” activities subject to prior authorization is significantly broader. As a result of the Brexit, U.K. investors, including U.K.-based PE funds, will no longer qualify as EU investors for the foreign investment regulations and will be subject to a more stringent preauthorization regime. This will prejudice U.K. bidders in competitive open bid processes.

Antitrust Clearance

The acquisition of a company that operates in several member states requires, subject to meeting certain thresholds, an antitrust clearance from the European Commission. Following the Brexit, a specific additional antitrust clearance from the U.K. authorities might be required if the target has significant U.K. operations, adding uncertainty to transactions involving targets with significant U.K. operations.

(2) The Effect on U.K. Investment in Portugal and Commercial Relations between both Jurisdictions

A member state’s exit from the EU is unprecedented in the history of the European integration process. Despite all legal issues connected with the exit process, particularly those regarding the necessary intervention of the British Parliament on the exit act itself and the revocation of the European Communities Act, negotiations shall be held under articles 50 of the Treaty on European Union and 218 of the Treaty on the Functioning of the European Union. Much remains dependent on the outcomes of that intervention.

What the position of the U.K. with respect to its political relations with the EU and the access to the European single market will be is yet unclear. We do know that the forthcoming exit shall determine a drastic change in the international scenario with inevitable consequences on the European project.

In Portugal, as in every European country with any exposure to the EU, the political and economic effects of Brexit are already being felt. The current climate of uncertainty penalizes investment mostly in vulnerable assets and therefore in the countries of the so-called periphery of the Eurozone, such as Portugal.

In the aftermath of the British decision, the PSI-20 index (the main reference index of the Portuguese stock market) immediately dropped by more than 10 percent, reaching the lowest value since 1996. Many Portuguese businesses expressed their concern with the country’s exposure to British economy, particularly bearing in mind foreseeable losses arising from the sharp depreciation of the pound. In this regard, some Portuguese banking institutions have already announced their preference on securities of Iberian companies less exposed to the U.K.

The relevance of the U.K. within Portuguese international trade has been a considerable cause of concern. Indeed, the British consultant Global Counsel has considered Portugal one of the countries most vulnerable to the Brexit, taking into account factors such as exports, number of expatriates in the U.K., and banking liaisons.

Historically, the U.K. is one of Portugal’s main economic partners, and both countries based their relations on the world’s oldest diplomatic alliance still in force (the Anglo-Portuguese Alliance). The solid commercial relations between the countries, the importance of British investment in Portugal, and the relevance of British revenue in the tourism sector may mean the U.K.’s downturn affects Portugal’s economy more greatly. Having said this, however, Brexit may still allow some new opportunities for Portugal.

First of all, the British decision may generate an increased interest in the Portuguese real estate market. In fact, the referendum’s negative impact on British real estate markets may redirect the foreign investors who typically look to the U.K. to other European countries, such as Portugal.

Secondly, an effective implementation of Brexit may generate a greater interest in the Portuguese Visa Gold system. Foreign investors in Portugal may benefit from a regime allowing them to enter into, reside in, and work in the Portuguese territory without the need of a regular permit and consequently to freely circulate within the Schengen Area. The Golden Visa may be granted to citizens of non-EU states provided that they carry out an investment activity, such as an acquisition of real estate in Portugal with a value of 500,000 euros or more or the transfer of capitals to Portugal in the amount of one million euros or more.

Possible Consequences in Spain

Uncertainty. That was the first headline, and ever since June 23, it has been the bottom line. There is uncertainty about when, how, even why, and there is much anticipation about the outcome of this unprecedented emancipation process.

For Madrid, Spain, there is an additional element of local uncertainty, as since December 2015 we have not been able to form a new government, a situation which remains unclear even after second elections were celebrated last June 26. This combination creates tensions and provides thin arguments predicting what will happen next. These issues have been intensely debated over the past weeks, and we arrive at some tenuous possible consequences.


The U.K. is number one in tourism visits to Spain, and in 2015 we were chosen as a vacation destination by more than 15.5 million British visitors who spent more than 14 billion euros on lodging and entertainment. Moreover, more than 300,000 British citizens have chosen Spain as their permanent residence and hold a significant volume of real estate investments in the islands and the eastern and southern continental coasts. If, as it seems, the euro/sterling exchange rate will fall against the interests of the U.K., there is a common opinion that traveling to Spain will become more expensive and less attractive, and in the nearer future, tourism will fall, impacting all related industries. The ownership and acquisition of properties will also be affected as the conditions for both could likely become more burdensome and expensive, as it is now for non-EU individuals.


Spain exports more than 18 billion euros per year to the U.K., imports over 12.5 billion euros, and transactions with the U.K. represent about 11 billion euros in revenue for Spain. Depending on the future commercial agreement that replaces the current EU status and assuming that the sterling pound will be weaker, there is a fear that Brexit could result in a decrease in the Spanish export industry, which would affect the car, pharmaceutical, and aeronautic industry most directly.

Finance Sector

Leaving the EU will certainly make regulatory compliance tricky. Spanish banks, such as Santander, have a significant percentage of their results generated in the U.K. European banks in general have huge credit exposure over British banks and companies. Brexit has generated a fear that the weakness of the sterling pound might force some of these credits to default and that those institutions with relevant assets in the U.K. may be negatively affected by a decrease in their value. If the city is no longer attractive and investing in or through the U.K. becomes inefficient for other European partners, a new financial center will have to take a step forward to receive the post-Brexit aftermath. There is a chance here for governments to pass attractive laws and foreign investments regulations that might encourage a financial migration.

Spanish residents in the U.K.

A new wave of highly educated emigrants affected by the Spanish crisis are looking for employment in the EU. Until Brexit, the U.K. had received 14 percent of these modern immigrants, comprising young professionals who are employed as doctors, nurses, or financiers. A lot of these are part of the 120,000 Spaniards currently working in the U.K. The use of hospitals and the social security network by these workers is another hot topic, which has its counterbalance in its use by British residents (who are more and older than Spaniards dwelling in the U.K.) of the Spanish social security system, and that could result in a positive balance for Spain.

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