Jump in Scottish deal-making adds to growth hopes

Published on Sunday 18 October 2009 20:42

LIFE may already be returning to the corporate sector, with the level of deal-making in Scotland recovering strongly since the start of the year.

Figures from professional services firm KPMG show that the number of business deals in Scotland rose sharply in the second quarter of 2009 to 53, an increase of just under a third compared to the first quarter.

While the number of businesses being bought is still well down on a year ago, it is the first quarterly rise in a year. Companies expanding through acquisition is a leading indicator of business optimism.

Craig Anderson, KPMG's senior partner in Scotland, said the figures pointed to a bottoming-out of the deals market, and if investor confidence stays high, the recovery should continue.

"If the growth and relative high value of the FTSE can be sustained, we would expect activity to grow further."

There was no sign that economic weakness was contributing to the rise in deals, with the number of "distress" sales stable.

The news comes on the back of research by Deloitte that shows optimism has reached the highest level since the survey began two years ago.

Deloitte's survey of 120 leading finance directors found that 92 per cent expected merger and acquisition activity to increase in 2010, with 39 per cent contemplating making corporate acquisitions this year.

This emerged ahead of expectations that the recession will be declared officially over this week. On Friday the Office for National Statistics will release estimates for national output between July and September.

The UK economy has not grown since the first quarter of 2008, but economists expect official figures to show growth – albeit marginal – of 0.2 per cent in the third quarter.

But there were warnings that while technically the economy might be improving, it would be weak for more than a year.

Ernst & Young's Item Club says that talk of a recovery is premature. The group forecasts weak economic growth until 2011, with growth in the gross domestic product struggling to reach 1 per cent next year.

Dougie Adams, the Item Club's senior Scottish economic adviser said: "For an enduring recovery, Scotland faces a major challenge of shifting gears to an export and investment led economy – a process that certainly won't take place overnight."

The warning was echoed in a survey by Clydesdale Bank which says that while there will be some improvement in 2010, an "upswing" is unlikely before spring 2011.

Scott McKerracher, regional director for Clydesdale Bank in Scotland, said: "Clydesdale Bank economists believe that although the economy will see some growth next year, it won't be until the first half of 2011 that it will be consistent and sustainable."

Many industrial groups are still concerned about the efforts of the government to restore public finances.

The CBI warns today that the government will need to take 120 billion out of current spending plans to balance the books.