Since the start of 2016, Scotland has experienced an increase in productivity, with the M&A market and wider economy performing considerably well. The country’s key strengths lie in the financial services, higher education, food and drink, and oil and gas sectors, evident in recent deal activity and foreign interest. Amidst the run-up to Brexit in 2019, business owners are opting for M&A as a primary strategy for growth; as summarised by Cahal Dowds, Chairman of Deloitte Advisory Corporate Finance, “M&A is no longer second best to organic growth”.
According to the latest National Statistics publication for Scotland, the country’s GDP grew by 0.1% during the second quarter of 2017. Following growth of 0.6% in the first quarter, and compared to the same period in the year prior, the Scottish economy has experienced a growth of 0.5%, indicating a positive and upward trend. Further evidence of Scotland’s economic strength showed output per-hour worked grow by 3.5% in 2015, compared to a UK figure of 0.9%, indicating a growth that is four times faster than the UK average.
Scotland’s private sector is also currently experiencing great success, with output growth accelerating to a three-month high, due in the most part to an increase in employment in the manufacturing and service sectors in October 2017, according to the Bank of Scotland’s monthly regional purchasing manager’s index.
Amidst Scotland’s economic strengths, M&A activity in the region has been strong, with Scotland performing well according to Corporate Finance Director at PwC, Campbell Cummings. He states: “We are seeing a growing prevalence of both private equity funds and family offices, both Scottish-based and from down South, looking to invest in local businesses with strong, capable management and growth ambitions.
“This is supported by positive trends in the debt market, with availability of funding from traditional lenders being strong, and the continued low interest rate environment driving favourable investment terms for buyers.”
The most active sectors in recent Scottish M&A were manufacturing, food and drink and recruitment. A notable recent deal included the sale of independent craft brewer, BrewDog. In April 2017, the company announced the £213m transaction, in which American private equity company, TSG Consumer Partners, acquired approximately 23% of the company. Another recent deal included the multi-million-pound acquisition of the majority of the JRJ group, which includes John Ross Jr in Aberdeenshire, by PRFoods, Estonia’s largest fish producer.
At KBS Corporate, we have completed deals for a number of Scottish companies across a wide range of industry sectors. Most recently, we negotiated the sale of Kercco Automation Limited, a Glasgow-based provider of hardware and software solutions to its clients, which attracted Swedish PLC, Novotek AB. Another recentl deal managed by KBS Corporate was for Pro-Check Environmental Services (Northern) Limited, a Dundee-based pest-control and environmental solutions company that delivers specialist pest-control, cleaning and hygiene services. The company was acquired by Servest Group Limited, a globally operating company that offers a diverse range of services, including cleaning, pest control, and waste management. Both deals have displayed keen international interest.
According to the latest annual survey into Foreign Direct Investment attractiveness, published by Ernst and Young, Scotland retained its status as the top UK region outside of London, making 2017 the fifth consecutive year that it has achieved the accolade. It is a mixture of a highly-educated and skilled work force and a longstanding reputation for innovation that has resulted in Scotland’s world-recognition.
As Brexit approaches, political uncertainty and the effect it could have on the economy is a concern amongst many. However, for Cabinet Secretary for Finance and Constitution, Derek Mackay, the future holds potential. In a bid to address the uncertainty, he states: “we will continue to do what we can, including taking forward our £500m Scottish Growth Scheme, by investing in our infrastructure plan and by supporting our universities and research base. We will also continue to support the Scottish economy by protecting our place in Europe’s single market – with the substantial benefits this will have for our economic well-being.”
In the wake of Brexit, the M&A market is performing well. Donald Munro, head of Corporate law-firm, Harper Macleod, says “Brexit, while a subject of conversation, isn’t a deciding factor in deal making decisions.”
Growth continues to be the number one priority, and the reality is that cautious UK companies are turning to acquisitions as a means of driving growth. Combined with foreign interest in Scottish and UK businesses, the outlook is that Scottish M&A activity will remain resilient.