Scottish opportunity increasingly attractive to private equity - Stuart Robinson

A large and growing number of ambitious teams leading strong businesses in a variety of sectors makes Scotland a very attractive market for private equity investment.

Britain has long led Europe’s private equity investment activity, with a “nation of shopkeepers” driving opportunity for well-capitalised investors to help companies grow faster and more sustainably.

But this activity has long been concentrated in the South-east of the country, largely around London and the Home Counties. The lack of coverage in other parts of Britain was to the detriment of ambitious businesses, but benefited the small number of houses catering to the regions – ensuring competition was low.

This is no more. Noticing this market inefficiency, Inflexion Private Equity opened its first office outside London in Manchester more than 15 years ago. A number of other firms have done similar, meaning other areas – particularly in the north – are better served.

This increase in activity creates an ecosystem that helps propagate entrepreneurship, which in turn is good for local economies, employment and investors. It’s a circle that is highly virtuous: private equity is no longer merely about buy-outs of large businesses.

Inflexion, for example, has a dedicated fund for minority investing, Partnership Capital, to appeal to owners who wish to retain control as well as its more traditional Buyout Fund and a dedicated Enterprise Fund aimed at the smaller companies.

There is also a growing venture capital (VC) community. And all these experienced houses provide more than capital, with growth typically accelerated through hands-on investing and supporting management in areas such as international expansion, mergers and acquisitions (M&A), and tech enhancement, to name a few.

'We’ve been tracking the Scottish market for over a decade and have been really impressed,' says Mr Robinson. Picture: Piranha Photography.

Scotland has taken longer to generate as much private equity activity as England, but this may be changing. With Statista counting 342,000 private sector businesses at the end of 2021, the Scottish opportunity is significant and growing. Add to this the increasing financial firepower of the private equity market enticing firms to cast nets wider, and it’s clear activity should grow.

At Inflexion Private Equity, we’ve been tracking the Scottish market for more than a decade and have been really impressed with the number of high-quality businesses we have met. We are delighted to have had success in investing behind some great teams in recent years.

Appeal

Recent data suggests the strong 2021 was across a variety of deal sizes and sectors, illustrating the widespread appeal of the country to investors. The Scotsman recently reported that more than £2 billion had been invested by private equity into Scotland in 2021, near its pre-pandemic levels.

The last few years have seen early-stage investments, minority investments, sales between financial investors, a healthy number of buy-outs and even take-privates of listed companies.

The sector spread has been equally diverse, with transactions across healthcare, automotive parts, leisure – even a sizeable buy-out of a Scottish whisky business. Sectors that appear often include software, business services and oil and energy – itself incredibly valuable right now and likely to be a big draw for the country going forward.

Inflexion’s first Scottish investment was made in 2014 when we led the buyout of PD&MS, an Aberdeen-headquartered specialist provider of engineering, procurement and construction services for the energy industry.

The firm is committed to supporting the energy transition and has made significant investment to ensure it is well-positioned to play a key role in implementing low-carbon solutions across a range of sectors to help its customers achieve their net-zero targets.

Inflexion’s next investment was in Glasgow-based Goals Soccer Centres in 2019, which allowed the founders to return to the company they’d created in 1987. Goals is the UK’s leading operator of small-sided football centres, and since investment Inflexion has helped to enhance digital capabilities whilst continuing to invest in the estate.

Investment

Our investment pace in Scotland has picked up recently, and just last year Inflexion made an investment into Systal Technology Solutions, a managed network services provider based in Glasgow offering a mission-critical managed network service to service clients’ IT networks globally.

Its focus is on expansion in the UK and overseas, and it’s leaning on our network of in-country experts to support this. Earlier this month we invested in Astrak, a specialist European distributor of parts for tracked equipment. The founding family will partner with Inflexion as shareholders and will continue to manage and drive the Fife-based business as it navigates its next phase of growth.

What’s good for investors is also good for Scotland’s economy, since private equity provides expertise to help businesses to accelerate growth. An example is that of Skyscanner, a global travel brand whose revenues grew from $1 million (£797,0000) to more than $230m during its partnership with Scottish Equity Partners before being acquired by Nasdaq-listed Trip.com in 2016.

As a result of the hands-on approach of the private equity firm, Skyscanner was able to build out its management team, pursue M&A, and grow internationally, ultimately resulting in headcount soaring from 28 to 800 in the nine years with private equity backing.

Scotland has long had a history of successful businesses, from manufacturing to tech-driven firms, and we are so impressed with the ambition we are spotting north of the Border, with two transactions in the space of a year reflecting the growing opportunity we see here.

Stuart Robinson, partner at Inflexion Private Equity, who is responsible for sourcing, evaluating, and leading minority and majority investment opportunities with an emphasis on the industrials sector. Inflexion provides £10m-£400m of flexible funding for ambitious businesses through its Buyout Fund, Partnership Capital (for dedicated minority investments) and Enterprise Fund (for lower mid-market opportunities).