Corporates shell out to net best opportunities – rich pickings in buoyant market for mergers and acquisitions
The technology and financial services sectors are leading the way in terms of volume and value of corporate M&A transactions this year and looking forward to the year ahead, lawyers in the sector are tipping consumer products as the sector to watch as activity increases in food and drink.
While oil and gas has had its challenges over the last 12 to 18 months, the feeling across the board is that corporate M&A activity is thriving with transactions in the Central Belt compensating for any slowdown in the north-east.
“In terms of volumes and values to us, we had a considerable amount of deal flow coming through,” says Will McIntosh, partner in Brodies’ corporate team.
“We have been seeing consistent growth with the exception of quarter one actually, which has to do with oil and gas.
“If I strip that out, there has been a huge amount of activity. We have probably done over $25 billion of UK deals to date. If we were to limit it to Scottish deals it would be closer to the pound figure of £10bn.
“Financial services has been very active. Some of it has been led by divestitures by some of the major financial institutions.
“The other sector that has been quite active in Scotland has been food and drink, particularly around the beverage sector.
“Real estate plays have, in terms of both the property development companies and builders, again been another active area.
“We are beginning to see a lot more on the renewables front. Whereas we have had years of build out of projects we are now seeing renewables being traded much more actively with either utility companies or financial institutions beginning to pick up some of the existing assets.”
Colin Lawrie, head of corporate in Scotland at CMS, reports a busy year for the M&A team with a healthy amount of deals going on. CMS is one of the top players in the corporate market and is ranked in tier one of Chambers Guide for 2015.
“There’s no doubt that many of the deals are happening at the more substantial end of the value spectrum,” says Lawrie.
“It would be nice to see the healthiness follow through at all levels. It would be good to see the start ups and the spin outs a bit healthier than they are just now but there’s certainly activity at all levels.”
The possible exception, Lawrie says, is Aberdeen where it is a largely oil dependent micro-economy and the pressure of a low oil price has affected the sort of deals that are going on. The reduced price of crude oil is forcing businesses to look at divesting their core activities and assets that are sub-economic for them and which may be of interest to the next level of operator down. The overall result is an emergence of opportunistic buyers.
In May, CMS acted for Ferguson Group in the sale of the business, a transaction which is rated as one of the largest single shareholder exits.
“It’s an example of if there are active businesses to be acquired then there’s interest in the Aberdeen market,” says Lawrie.
“We did a large transaction, just over £500 million, for BG group on the purchase of the Cats pipeline it had, which again shows we are active and there’s deals still to be done in that sector.”
Deals in the Central Belt are picking up any perceived slack from the oil and gas industry with lawyers dealing with emerging consolidation in the financial services industry. This, on the one hand, is a result of the changing regulatory environment and cost pressures on businesses, while on the other hand, particularly in the regional banking sector, there is the continuing rise of challenger banks.
“We are seeing a lot of activity being driven by these two influences,” says Lawrie.
CMS was involved in the Alliance Trust Savings deal in which it bought out the Stocktrade business from Brewin Dolphin in May.
“There’s more depth in the marketplace,” Lawrie continues.
“Nothing like as much as there was in 2007, 2008 but there’s certainly more liquidity out there and it is helping to drive deals.”
CMS is looking to improve its work in the consumer products sector as food, whisky and the retail and leisure sector become even bigger parts of the Scottish economy.
Equally, lawyers in the corporate teams at Scotland’s leading legal firms are interested in seeing how the technology business develops.
Scottish universities are key to the development of Scotland’s technology market with a lot of early stage activity being generated by entrepreneurial spin out teams at the institutions.
Ranked tier one in the Chambers guide for corporate M&A, Burness Paull’s corporate finance team has reported its busiest year yet with increasing transactional activity visible in the Central Belt.
“Businesses, post recession, have been doing well and have attracted the interest of, in particular, international investment,” says Peter Lawson, head of corporate finance at Burness Paull.
“Some examples of these would be in technology. FanDuel had Scotland’s largest private equity deal of the year and we advised PE giant KKR on that deal.
“Edinburgh is now becoming a real technology hub and attracting interest globally.”
In financial services, Standard Life set up its new financial advice business, 1825, after buying Pearson Jones from Skipton Building Society earlier this year, with Burness Paull advising Standard Life.
Like CMS, Burness Paull has seen a busy year in terms of food and drink with the sale of Macduff Shellfish to Canadian firm Clearwater Seafoods.
In terms of predictions for the coming year, the outlook is positive with high levels of deal activity set to continue.
“I do think the economy is strong, and even with some significant geopolitical headwinds ahead, the dealmaking landscape is pretty fertile,” says Lawson.
“There are a lot of very good businesses which are looking at their next stage of their growth, whether it’s an exit or whether it’s an acquisition. I see there being a lot of activity over the next 12 months.”
• The Scotsman’s annual review of the legal world looks at some of the most active areas of legal practice in Scotland. Informed by comprehensive data published by Chambers and Partners and Legal 500, the articles give exclusive insight into the work of the more than 11,000 practicing solicitors and 463 practicing advocates.