Central to deal-making activity in Scotland over the past year has been a resurgence in private equity. By definition, it seldom makes the headlines that can accompany mergers and acquisitions in the public market sphere. But ‘low profile’ does not at all mean a low level of deal activity.
Across Scotland and the UK as a whole, and in international markets, private equity has become the deal du jour. Typically such a deal involves shares representing ownership of or an interest in an entity that is not publicly listed or traded. Much private equity finance comes from high net worth individuals and firms buying shares of private companies or acquiring control of public companies with plans to take them private, eventually de-listing them from a public stock exchange. Most of the private equity industry is made up of large institutional investors such as pension funds.
A major challenge for public companies in recent years has been the rise of short-termism, with investors putting pressure on companies for improvement in immediate results, with longer term investment strategy and planning pushed into second place. Many management teams also prefer the greater flexibility and freedom that comes with private ownership and escaping the onerous regulatory requirements that accompany a public listing.
Here in Scotland the relatively low number of companies listed on the public stock exchange has given cause for concern. But there is no lack of activity in the private equity space. There are at least half a dozen leading private equity specialists and advisors including Scottish Equity Partners, AAB, Brodies and Dunedin. And in the past year some sizeable private equity deals have been successfully concluded.
This article featured in Deals 2018. A digital edition can be found here.
Typical, for example, is the recent completion by Dunedin of a £44 million investment in Global Processing Services, whose clients include digital and challenger banks, fintechs and financial institutions.
Hawksford, the international corporate, private client, and funds business backed by Dunedin, has bought corporate services provider People & Projects in a move that steps up the group’s Asian presence with new representation in China and Japan.
And the sale late last year of Kee Safety from its buy-out fund to Investcorp for £280 million followed hard on the heels of the successful Initial Public Offering of shares in Alpha Financial Markets and the sale of Blackrock Expert Services.
One of the leading figures in corporate deal-making in Scotland is Douglas Crawford, who heads Brodie’s private equity offering. He has over 25 years’ experience as a transactional private equity lawyer and has led some of the country’s most prolific M&A transactions including the acquisition of oil field service group RBG by Stork, the buyout of Production Services Network from KBR, and the sale of north-east based container and accommodation supplier Ferguson Group to international supply chain group Brambles. He has also advised in the buyouts of various well-known brands including Denby, Tuffnells Parcel Express and Giles Insurance Group.
“We are seeing”, he says, “more private equity and general transactional interest in Scotland than we have done for a while. Aberdeen is now recovering from the oil price recession and companies are starting to come forward to do deals.”
At the end of 2017 Brodies advised on the sale of the Aberdeen-based family-owned Craig Group’s core North Star Shipping business to Basalt Infrastructure Partners. North Star, with more than 850 seagoing staff, provides essential emergency response and rescue services to the offshore industry in the UK North Sea and owns and manages 31 ships supported by a fleet of about 50 fast rescue and 35 daughter vessels.
Brodies was also involved in the management buy-out of John Lawrie Group, one of the leading scrap metal reprocessors, decommissioning specialists and steel trading companies in the UK. Founded in the 1930s it has grown and diversified to become one of Scotland’s leading privately-owned businesses, with an annual turnover of circa £100m.
Mr Crawford adds: “Many Scottish owners tend to be sellers rather than buyers and there is a tendency here of selling to trade and financial buyers rather than growing companies for the long term,
“However while the weaker pound has certainly helped to encourage foreign investment in the past year, the last five years have seen Scotland beating records in inward investment so it is not just the exchange rate that is encouraging overseas investors to look at Scottish targets.
“As for Brexit, “the impression I get is that, for now, business is just getting on with it – and deals are still proceeding..
“The food and drink sector is particularly successful and we have top quality products in Scotland. Whilst Brexit is not currently getting in the way of activity in these sectors we will have to wait and see what happens in the negotiation process as to whether there will be an impact on the flow of goods and labour.
“Overall, he says, “the central belt is pretty buoyant and the north east is recovering and should see that recovery progress further next year. 2019 is looking good and we have a very decent pipeline of business on the books.”