After the Bank of England announced its biggest hike of interest rates in three decades yesterday – from 2.25% to 3% – and news of the UK potentially facing its longest recession since records began, it may come as a surprise to hear that the UK was still Europe’s strongest performer for seed funding in October. British startups brought in a total of €111m – more than double when compared to its nearest competitors – France and Germany – who raised just €49m and €45m respectively. Normally, this would be accompanied with news that fintech is leading the pack, however it ranked a mere 4th on the list, bringing in a total of just €6m, compared to the €21m that went to the leading sector – healthtech.

This also comes fresh after the well-publicised mini-budget chaos which caused the value of the pound to plummet, and ended the tenure of Lizz Truss as prime minister. However, CEO/Founder of business advisory firm, Trachet – who’s helped to facilitate over $500m worth of transactions in the past three years – states that a weakened sterling, combined with renewed optimism surrounding new PM Rishi Sunak’s ability to manage the nation’s finances, could result in both the deals market and investment remaining strong in the UK.

This is due to the fact that as the pound falls against the dollar – slumping yesterday to just $1.11 following the announcement – British companies become increasingly cheaper for foreign firms to either invest in, or take over. “For US investors, if things continue the way they are going, it could become something like a garage sale – but one with real value,” explains Trachet. However, whilst it will come as welcome news for UK startups that deep-pocketed overseas investors will be eyeing up opportunities, this also come with a number of drawbacks.

Firstly, many industry leaders are calling for changes to local M&A rules for UK transactions – which is governed by a 433-page code and enforced by the Takeover Panel – which has resulted in many unsuccessful deals and can deter foreign investment. In addition to this, announcing a potential M&A can have a positive effect on a company’s valuation, such as the recent announcement from Made.com of a number of potential acquirers interested in buying the company, resulting in a 24% increase in their share price.

However, if the deal falls through, the impact on a company’s valuation can be detrimental and cause serious harm to their chances as a prospect to other buyers. Serving as testament to this, one of the world’s largest PE firms, Thoma Bravo, announced intent to purchase cyber-security giant – Darktrace – earlier this year, however Darktrace lost 33% of its value after Thoma Bravo ditched their bid. This means UK firms must ensure they are deal or investment ready, in order to avoid suffering the same fate.

Claire Trachet, CEO and founder of business advisory, Trachet, comments on the current state of investment and deals in the UK following yesterday’s announcement:

“Yesterday’s announcement has generated mass concern from industry leaders and the investment sector following a drop in the value of the pound sterling coupled with the surge in the country’s borrowing costs. However, British firms will still continue to receive interest from a flurry of overseas buyers looking to capitalise on a weaker pound and deteriorating valuations.

“This has its positives and negatives, as on the one side it will attract a great deal of foreign investment to the UK, alongside new tax incentives and favourable regulatory conditions. However, low valuations mean UK companies entering potential M&As may get less than they bargain for, so it is a critical moment for the sector here to show resilience.

“I always stress to my clients the importance of being deal ready before heading into any potential transaction. The buyer has shown an interest in your firm at a particular moment in time, but a simple change in external market conditions could lead to them getting cold feet and pulling out. What that means is you need to have done all the necessary preparation before negotiations have started, to ensure the deal gets over the line quickly and smoothly and a failed transaction doesn’t impact the companies valuation.

“This has never been more important than in the current deals market where the environment can dramatically change over the course of just a few weeks. Another really important thing here is to both sign and close the deal at the same time, as this prevents anything putting the deal in jeopardy in between those two things happening.”