Falling FDI In UK Firms Signals Need To Seize Investment Zone And Freeport Opportunities

Specialist business lawyers at Irwin Mitchell are calling on the government to continue supporting Investment Zones and Freeports following new figures which reveal that interest in UK businesses from overseas investors has stalled.

The law firm has analysed industry data and says although the UK continues to drive significant interest from foreign buyers, the number of UK firms which were targeted in an overseas deal, such as an acquisition or management buyout, fell to 610 last year compared to 711 in 2022. 

The research shows foreign investment in the UK is increasingly concentrated in London and the South East, with these areas accounting for 42% of deals in 2023, up from 35% in 2019.

The data also show that throughout the last 12 months, the US continued to be the most active investor in UK businesses with just over a third (34%) of completed overseas corporate deals initiated by American organisations.

Expert Opinion

“Despite the dynamic nature of global investment patterns, this data underscores the enduring economic significance of London and the South East in attracting international business interest.

“Our research does however also highlight that investment activity in this traditional FDI hotbed has increased whilst in other regions, such as the North West, the North East, Yorkshire, and the Midlands, deal volumes have started to fall.” Bryan Bletso, partner at Irwin Mitchell

Foreign Direct Investment (FDI) refers to an investment in an enterprise operating in a foreign economy, where the purpose is to have an ‘effective voice’ in the management of the organisation. According to the latest ONS data,FDI into the UK has increased year-on-year for a decade to stand at over £2 trillion by 2021.

Last November, Conservative peer Lord Harrington published a report which called for a change of approach by the government in terms of attracting FDI. The report made several recommendations including more collaboration between central government, local government and public and private stakeholders.

The UK Government also say that Freeports and Investment Zones are a part of its FDI strategy. Announced in 2023, Freeports are designed to boost economic activity and the ‘levelling up’ agenda by fostering trade, investment, and job creation around maritime ports and airports.  Companies operating within freeports can enjoy reduced property taxes and national insurance rates. The government is committed to establishing 13 Investment Zones across the UK. The expectation is that many of the zones and tax sites within them will go live in Spring 2024 but so far Liverpool is the only one to have officially done this, announcing details of its proposition at MIPIM.

Expert Opinion

“Government initiatives such as freeports and investment zones could be a gamechanger for providing favourable conditions for UK based businesses, attracting more interest and investment in the UK from abroad, and levelling up the economy. The ability of the UK to attract overseas investment in relation to creating new jobs and driving innovation cannot be overlooked.

“Making the UK the top investment destination in Europe, attracting new investment into communities sand helping to level-up the country, is one of five key priorities for the Department of Business & Trade. Providing tailored support for each investment zone and promoting our offering in this area on an international stage is a crucial part of this.” Bryan Bletso

Irwin Mitchell published a report last summer which examined the most attractive locations in the UK for FDI. Inner London secured top spot due to its local skills, large economically active population, and many well-respected universities.

Irwin Mitchell analysed deals recorded on Experian’s MarketIQ database. The type of deals were Acquisitions, Development Capital, Employee Buy-Ins, Employee Buy-Outs, Investor Buy-Ins, Investor Buy-Outs, Leveraged Buy-Outs, Management Buy-Ins, Management Buy-In / Buy-Out, Management Buy-Outs, Mergers, Public to Private, Reverse Takeovers, Secondary Buy-Outs, and Startup Fund Raising.