Cross-border deals, a big source of revenue for law firms in Philadelphia and beyond, likely will take a hit from the British vote to exit the European Union, lawyers who specialize in international transactions say.
Mergers-and-acquisitions activity had already been softening by June 23, the day of the Brexit referendum, as high asset valuations had begun to discourage investors.
But the British vote to leave the EU created a whole new set of problems. For many American companies, the United Kingdom long has been a launching pad for selling into the European continent. Britain's exit means that U.K.-based companies, or U.S. subsidiaries there, may lose the favorable trading terms that go along with EU membership.
Or they may not. The point is, no one knows, and that is turning off many investors.
"Our expectation as a firm, particularly if you are talking about M&A investment in the U.K., [is] we would expect that to decline fairly precipitously," said Stephen Leitzell, a deal lawyer at Dechert L.L.P., the University City-based law firm that focuses on international transactions.
"I think the level of uncertainty, economic, legal, regulatory, and political, when you combine all of that, to think that someone is going to make a major capital investment in the U.K. right now without knowing what the outcome will be seems pretty unlikely," Leitzell said.
Indeed, financial markets roared back to life this week, recovering much of the ground lost after the Brexit vote. Still, signs of political and economic uncertainty abound, not only in the U.K. but among remaining EU member nations.
Major companies such as Vodafone and EasyJet won't say whether they plan to stay in Britain, while uncertainty rose Thursday over who among the Conservatives will replace Prime Minister David Cameron and lead negotiations with the EU over terms of its future trading relationship with the U.K.
Meanwhile, Brexit-like movements in Germany, Austria, and France are gaining momentum, raising questions about the survivability of the EU itself.
"Whenever there is this kind of volatility, that puts limits on M&A activity," said Floyd Wittlin, deputy leader of the corporate, business, and transactions practice at Morgan Lewis, the Center City-based firm with extensive international business. "The uncertainty goes away when financial markets settle down."
A handful of lawyers see a silver lining in the Brexit cloud, though.
Susan Laws, head of the London office of Center City's Duane Morris, said she expects deal activity to pick up as clients adjust to the new relationship between the EU and Britain, however that shakes out. Not only are assets more favorably priced now that the British pound has lost value, she said, but companies outside Britain and the eurozone will need new footholds in EU member nations if it turns out the U.K. loses its favorable trading relationship.
One possibility she foresees is a pickup in financial-services companies seeking to locate in Ireland, an EU member, to preserve access to European markets.
"There are people who see the U.K. as a cheap market and may be willing to buy now," Laws said. "Brexit is going to cause destruction, and creative destruction creates opportunities."
Craig Circosta, head of the mergers-and-acquisitions practice at Ballard Spahr, said the decline in value of the British pound may create some buying opportunities, but like most deal lawyers he foresees significant investor caution in the months ahead.
Circosta does a brisk business in U.S. firms seeking a foothold overseas, but he sees activity in the U.K. and possibly the European Union dropping off for the time being.
"In the intermediate or short term, there is going to be a slowdown," he said.