The last 5 years has seen a significant shift in the M&A market towards overseas trade buyers and private equity purchasers in both Scotland and across the UK. It is a significant shift in who does the deals, and how they are financed.
“The rise of the overseas buyer is partly down to the attractive pricing of UK corporates as a result of the continued weakness in Sterling. That’s not to say that UK buyers aren’t still around, but the political and economic uncertainty of the last few years has made them a bit more cautious. Strategic buyers – wherever they’re based – remain confident in the medium to long term prospects for the UK economy, and are continuing to make acquisitions. There also remains a lot of private equity funding looking for investment opportunities and PE house. Those based here in Scotland and further afield are actively seeking out and engaging with business owners to help them realise their ambitions and strategies.
The future of Entrepreneurs’ Relief remains a concern for a lot of business owners and those concerns, coupled with legislative changes, growing compliance regulations and perceptions of higher risk are still driving a substantial number of entrepreneurs to sell their businesses.
Notwithstanding these issues, we should celebrate the recovery in the Oil and Gas sector where there are clear signs of deals being done and confidence returning, which is great news for Scotland’s economy.
And we should be alert to the threats facing traditional retail, which has now become a turnaround sector as businesses try to remodel in the face of the online threat and adapt to a major structural change that is clearly now underway. Several well-known Scottish retail businesses have sadly closed, and it is important that any retailers facing problems should seek early help with their strategy and financial position.
Deal watchers will be aware that deals are taking a good 2 to 3 months longer than 5 years ago, which is an interesting and probably permanent, change. The extended deal process is due to buyers and sellers wanting to spend more time on due diligence to ensure the deal is ‘right’. It is better to take longer to get the right deal, than get a quick deal that is the wrong deal. Risk and compliance have risen to the top of the agenda, with the banking crisis, data breaches, fraud and cyber security driving many businesses to invest far more on risk and compliance.”
Looking ahead, Scotland’s corporate finance scene is suffering from a shortage of experienced younger corporate finance professionals and the uncertainty caused by the ‘B’ word has acted as a brake on business confidence and frustrated investment and M&A activity.
However, we anticipate busy sectors being environmental, specialist healthcare, fintech and cyber security. There are also a lot of dynamic, more “traditional” businesses, in specialist engineering, and manufacturing, that provide design, maintenance and support as well as a product to their customers, where there is encouraging potential for an active corporate finance market.
It has been a challenging year, but the environment for deal making is in healthy shape, with plenty of opportunities, willing sources of finance and key drivers, such as Entrepreneurs’ Relief, encouraging business owners to exit.
It will be a busy 2020 – and we are up for it!
The information in this blog should not be regarded as financial advice. This is based on our understanding in December 2019. Laws and tax rules may change in the future.