the times | Friday March 6 2020 1GM 41

CommentBusiness

B

ritain is attracting foreign

investors. Not everyone

thinks this is necessarily a

good thing but it’s a fact.

Figures released this week

show that the value of inward

corporate mergers and acquisitions

(M&A) in 2019 was £53.8 billion.

Inward M&A is where a foreign

enterprise acquires a British-based

company. The figures can range

widely from year to year. One very

high-value deal pushed the total for

inward M&A as high as £78.8 billion

in 2018. Yet the figure for last year

was greater than for any year

between 2010 and 2015, and for the

value last year of outward or

domestic M&A transactions.

In short, foreign investors see

opportunities in Britain. That’s a

good thing, and it’s worth explaining

why. Cross-border M&A is an

important component of foreign

direct investment (FDI). This

investment is not the same as

moving capital into foreign bank

accounts or financial markets,

which is known as portfolio

investment. Instead it’s the net

transfer of funds to acquire physical

capital, such as plant and

machinery, in another country.

(Slightly confusingly, however,

portfolio transfers that involve

acquiring enough shares to have a

management interest in a company

are counted as FDI.)

I mention the figures from 2010 to

2015 because this period preceded

the Brexit vote. Many

commentators, including me,

expected Brexit to act as a brake on

inward investment. That doesn’t

seem to have happened. We can’t be

sure of the reasons but some

overseas enterprises may have been

attracted by a weaker pound.

Britain does have a notably free

market in corporate control, and

politicians have expressed worries

about this. The hostile takeover of

Cadbury by Kraft, an American food

giant, a decade ago for about

$19 billion caused controversy. Many

observers concluded it was too easy

for foreign enterprises to buy

famous British names.

There may sometimes be reasons

to block foreign acquisitions but

they’re not economic. The defence

industry is obviously crucial to

national security and governments

are reluctant to engage in defence

integration across borders. From an

economic perspective, that’s

inefficient, as there could be big cost

savings by exploiting economies of

scale, but it’s probably inevitable.

Much less defensible is the idea

that foreign acquisitions are harmful

because the profits of the target

company then flow to owners

overseas. It’s a potent populist theme

but it misunderstands what’s going

on when a British enterprise is

acquired by a foreign one.

There is no net loss to Britain

when profits are repatriated,

because the owner has already paid

a purchase price for the business.

What is the business worth? It’s

worth the net present value of the

future stream of cash flows that it

will generate for the owners. It’s the

same principle as when investors

buy shares or bonds in the financial

markets: they’re paying what they

believe to be an attractive price for

what the future stream of dividends

or interest payments is worth now.

In paying for the target, the

foreign acquirer is in effect ensuring

that all those future profits remain

within the UK. In fact, you could

argue in strictly financial terms that

Britain is the beneficiary. If a

foreign owner succeeds in acquiring

a British business, then that’s

because the offer proved attractive

to the existing shareholders. By

definition, there wasn’t a domestic

buyer who valued those future

profits as highly as the foreign

acquirer did.

This is a good arrangement for

Britain. FDI, unlike portfolio

transfers, involves a long-term

commitment. If Britain is to prosper

outside the EU, it will need

investment from firms such as

Airbus and Nissan. Other countries

may have tighter regulations on

corporate control but that’s not a

reason for following them.

Oliver Kamm

I have very few

mementoes of my

great-grandfather.

Who does? He was

born in the 19th

century and died 20 years before I

was born. But at a flea market I

recently found a faded print that

showed his name on the side of a

delivery van, proudly trumpeting his

business. Beneath his name it says:

“10,000 direct employees. 100,000

indirect employees.”

His name was Montague Burton,

his business was “Montague Burton,

Tailor of Taste” and it was

phenomenally successful. At its peak

Burton’s was making nearly 1 million

suits a year. The firm provided a

quarter of British military uniforms

worn in the Second World War and it

dressed the World Cup-winning

team of 1966. It is now, sadly, a

brand diminished, not least

under the ownership of Sir

Philip Green, but there was a

time when owing a Burton’s suit

was an aspirational thing.

I tell his story not to boast nor

to claim any reflected glory but

because it suddenly seems

relevant. Last month the

government unveiled its new

Australian-style immigration

system, which will bar anyone

who does not speak English and

who does not have a job offer

from coming to this country.

The Home Office has said that it

is time for Britain to wean itself

off cheap, foreign labour.

Maybe, but this policy would

almost certainly have barred the

parents of Sajid Javid, the former

chancellor, and Priti Patel, the home

secretary. This irony was pointed out

by my fellow columnist Sathnam

Sanghera, who wailed in frustration

that the story of unskilled

immigration was rarely championed.

Sanghera did not speak any English

when he started school but ended up

with an English degree from

Cambridge and a career as a writer.

I would not be here either under

this points-based system because

Montague Burton was not born

Montague Burton. He was born

Meshe Osinksy, in the Kovno

province of Russia, now part of

Lithuania, an area where most Jews

lived a hand-to-mouth existence

under Tsarist persecution. He escaped

with two friends in 1900, arriving in

Britain aged 15, not speaking a word

of English. Family lore claims that he

thought he had arrived in New York

when the ship disembarked in, of all

places, Hull. This probably is not true,

although plenty of Jews who fled

Russia and ended up in Britain in this

era were tricked this way.

There is frustratingly little

information about Meshe’s first years

in England. We know that he

scratched a living as an unlicensed

peddlar, selling shoelaces door to

door. In 1904 he had saved up enough

to open a tailoring shop in

Chesterfield, aged 19, selling cloth

caps and flannel shirts to the men

who worked in the booming

ironworks of the area. People

remember him studying late and

sleeping under the shop’s counter.

By then he had changed his name,

first to Maurice, later Montague

Burton, as he tried to assimilate. Not

that he was ashamed of his religion.

People scratched the word “Jew” on

the windows of Burton branches in

Manchester, Northampton and

London soon after war broke out in

1939. In a note to the police,
      Montague Burton said that he would
      have relished the chance to add the
      detail “... and proud of it”.
      By then he had a knighthood, 595
      shops, was Britain’s sixth biggest
      employer and owned the largest
      clothing factory in the world, which
      provided its 8,000 workers not only
      with a canteen able to serve fish and
      chips, fruit pie and custard to follow
      — in a single sitting — but also a
      gymnasium, a ladies’ cricket club, free
      dental check-ups and a bank deposit

scheme offering a generous 5 per cent

interest on savings.

Yes, I am proud of him. What an

achievement in such a short time. But

he was not unique. Michael Marks of

Marks & Spencer was another

Russian Jew who spoke no English,

had no job offer when he arrived and

made his living as an unlicensed

pedlar. The founder of Betty’s, the

quintessential English tearoom, was

Fritz Butzer, of Switzerland, who

arrived in Britain desperate for a

better life, not speaking our language

but with the vague offer of a job. He

could not remember the town in

which this possible position was; he

only knew that it sounded like

“bratwust”. Which, so the legend

goes, explains how he ended up in

Bradford.

Tesco, Belstaff, Chester Barrie,

Vidal Sassoon, Joseph, Rigby &

Peller, Cecil Gee, Stylo, Dixons,

New Look: half the high street

was founded by either first or

second generation immigrants.

Of course it is easy to

romanticise these pioneers who

worked all hours to make a

better life for themselves, and in

doing so created world-beating

businesses that fed and clothed

Britain. Yes, naturally, times have

changed but the enterprising

spirit still burns in many

immigrants. According to a

report by the Entrepreneurs

Network published last year,

only 14 per cent of UK residents

are foreign-born but 49 per cent

of our fastest-growing businesses

have at least one foreign-born

co-founder. These ventures are

now likely to be in fintech rather than

retail: the likes of Monzo,

Transferwise and Oaknorth all have

an immigrant founder.

Of course for every Montague

Burton or Michael Marks there were

hundreds who did not make a great

fortune but if we close our doors to

that one-in-a-hundred possibility

what does it say about us? If Britain

really wants to be open to the world,

that means being open to the world’s

“unskilled” workers.

Because one of

them may end up

being the next tailor

of taste.

‘‘

’’

Harry Wallop is a consumer

journalist and broadcaster. Follow

him on Twitter @hwallop

Oliver Kamm is a Times leader writer

and columnist. Twitter: @OliverKamm

Foreign investment is a

good thing for Britain,

despite the doubters

2011 13 15 17 2019

Outward

Inward

Source: ONS Domestic

Value of M&A

involving UK

companies

200

150

100

50

0

£bn

Harry Wallop

The Tailor of Taste reveals true

value of ‘unskilled’ immigrants