PRIVATE equity deal activity held up in Scotland last year in spite of political and economic uncertainty as cash-rich investors showed they were ready to back firms with growth potential, specialists have said.
An analysis by KPMG found that while the number of deals completed in Scotland by private equity firms fell slightly last year the total amount they invested increased by around 40 per cent.
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The accountancy giant said the resulting increase in deal size reflected the fact that investors had large amounts of money to deploy but found a limited number of companies that met their criteria.
Mergers and acquisitions specialists at KPMG reckon the result of the December General Election could spark an increase in deal activity across the UK in coming months.
However, warning that uncertainty about the outcome of trade talks between the UK and the European Union could weigh on confidence later in the year they said any upturn could prove to be short-lived.
KPMG said private equity investors completed 32 mid-market deals in Scotland in 2019 compared with 34 in the preceding year. The total value of deals completed rose to £2.77 billion from £1.98bn.
Takeovers on cards in Scotland amid political uncertainty
Deals completed in the mid-market category in Scotland included the takeover of patent attorney Murgitroyd by Sovereign Capital Partners for around £65m.
Across the UK the number of deals completed fell to 532 from 623. However, the total value of deals hit a five year high of £39.9 billion.
James Kergon, head of deals advisory for KPMG in Scotland, said: “Persistent geopolitical and economic uncertainty dampened enthusiasm in the wider UK M&A market, particularly during 2019. With that in mind, it’s reassuring to see relative resilience in the mid-market environment, both here in Scotland, and elsewhere in the UK.”
The increase in average deal size in Scotland, to £87m from £56m, reflected the fact there was a range of debt available to buyers and an abundance of investment capital.
Mr Kergon added: "A lack of availability of growth-hungry, resilient businesses that provide enough opportunity to add value ...could be another underlying reason behind deal size increasing."Jonathan Buyers, head of KPMG’s deal advisory arm in the UK said that after a long period clouded by uncertainty the December General Election at least provided the market with a degree of clarity,
“Companies of all sizes are starting to feel more emboldened to proceed with plans they have had on ice for the past several years,” he said. “PE funds remain eager to deploy their ample dry powder.”
Noting a recognition that trading conditions remain fragile and uncertainty about the implications of Brexit for trade, he added: “Expect to see more deals happen in the first part of the year, than in the latter months of 2020.”
The mid-market covers deals worth between £10m and £300m.
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