Guest post from James Knott, Deal Executive, Catalyst Corporate Finance:
The mid-noughties saw a string of UK-headquartered multinationals exit the country in search of more profit-friendly territories.
This shift, which included a number of medical device companies, did not go unnoticed by the UK government, not least because large chunks of corporation tax went with them. In a bid to stem the tide, the Government announced in 2009 that it would introduce an effective corporation tax rate of 10% from 1 April 2013, the Patent Box.
The Patent Box is applicable to any company liable to pay corporation tax on profits from exploiting patented inventions. The aim is to make the United Kingdom a more attractive location for the development and retention of intellectual property (IP), especially in the high tech arena. Add to this the existing R&D reliefs available to UK-based corporates, and the Government appears to be achieving its aim of creating the most competitive tax system among G20 nations.
But what does this mean from an M&A perspective? I believe the Patent Box will further encourage investment from overseas corporates, who will once again see the United Kingdom as an attractive proposition. The last 18 months has seen a number of rumoured foreign takeovers of UK-based device companies fall short—Stryker’s bid for Corin and Biomet Inc’s reported interest in Smith & Nephew, for example. This new legislation could, and should, help push such transactions through in the future.
Catalyst is aware of a number of major corporates in the UK device space that are interested in making in-country acquisitions in the short term. Given that M&A post 1 April 2013 will muddy the Patent Box water somewhat, it is expected that there will be a flurry of activity in the first quarter of 2013.