Scottish Legal Review: Buoyancy aided by the weak pound

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Despite the absence of blockbuster deals, the Scottish mergers and acquisitions (M&A) market has been busy and at times buoyant in 2018 – fuelled by a strong performance in specific sectors and by foreign investment attracted by a weak pound.

Technology and financial services have both enjoyed a positive year, with encouraging signs coming from the oil and gas sector too.

“It’s been a busy and very diverse market, with a good breadth of activity in terms of the types of deal done,” says Mark Ellis, a corporate finance partner at Burness Paull.

Doug Crawford, partner and head of private equity at Brodies, reports the “usual ebb and flow of activity” in 2018, with the overall market being “pretty buoyant”.

David Davidson, corporate finance partner at CMS, uses similar language: “The M&A market in 2018 remains buoyant with a healthy level of activity, particularly around overseas buyers and investors seeking to capitalise on a weak pound. While there were relatively few big M&A deals, the volume of transactions across a number of sectors was at a good level.”

Ellis also highlights foreign investment: “Far East and other overseas investment has been a real feature of the market. The value of the pound has been an undoubted benefit.”

Burness Paull advised Lothian Shelf (731) Ltd, a company set up by Chinese-based Zhuoli Imaging Technology, which bought the business and assets of Pelikan Hardcopy in Aberdeenshire out of administration in a pre-pack deal.

Ellis also mentions the significance of the tech sector in 2018. “There have been a lot of very positive stories around tech and investment going into growing businesses,” he says. “We have had a good run of tech deals; we act for Lending Crowd which has successfully raised money and really ramped up its operations throughout the year.” Burness Paull also acted for Maven Capital Partners in its £2.8 million investment in Livingston-based optical technology business Optoscribe.

“We are very positive and optimistic about the technology sector,” says Ellis. “There is good momentum and a strong network has developed, especially around Edinburgh.” He says a community of Venture Capital investors is developing in Scotland to support growing sectors like technology, including Par Equity and Archangels.

“They will often co-invest and work collaboratively for the greater good, so bigger deals can be done,” he explains.

Crawford says all three major business cities have had a decent year: “We have good levels of activity in all areas – Glasgow is pretty robust overall, with more M&A activity than on the east coast, apart from financial services. Edinburgh has had lots of international work and financial services activity.”

Ellis also reports “lots of good transactional work” in the Glasgow area, with Burness Paull acting for Boston Networks, an integrated technologies specialist, during its acquisition by Aliter Capital.

A major deal for Brodies in the west of Scotland was advising the shareholders of Barrhead Travel Group, which had a turnover of £279m, on its sale to Travel Leaders Group, one of North America’s largest businesses in the sector. Barrhead chairman Bill Munro and chief executive Sharon Munro retained their roles in the company, with no major changes in operations.

Looking north, Crawford continues: “Aberdeen has been quite interesting and is starting to recover, with lots of pre-deal activity and mandates coming through. Lots of companies are getting ready for sale and coming forward to start the process.

“Interestingly we have seen a number of deals starting at relatively low prices that are stalling because the targets are beginning to recover and do well again. They are not necessarily reconsidering sale but they are reconsidering price – they can see they might achieve a higher, more realistic sale price than a year ago.

However, there is no sign of valuations getting out of hand. I think a lot more deals will come through in Aberdeen in 2019.”

Crawford led the Brodies team in a major oil and gas deal at the end of 2017, which saw the Craig Group divest its North Star shipping arm (which had 850 contracted seagoing staff on its books) to Basalt Infrastructure Partners. Brodies also acted for oilfield decommissioning specialist John Lawrie Group, which was bought by its management last November.

“These deals signalled the start of the recovery in Aberdeen,” says Crawford. “Since then we have kicked on and had a number of deals completed; good-quality, sizeable transactions.”

Ellis has also seen lots more activity in the city: “There is more interest in Aberdeen, categorically. The recovery in the oil price has set the scene for interesting things to happen. Much of our work in Aberdeen has an international dimension and there is real positivity globally.

“Some strategic acquisitions and investments are taking place and our team in Aberdeen is doing some really interesting work, moving on from just consolidation and restructuring.”

Davidson of CMS describes “an improved level of deal activity [in oil and gas] this year, with this hopefully continuing into 2019.” He sees the financial services sector as “vibrant with a lot of corporate activity” and reports good activity levels in fintech: “There is a significant and continuing increase in the number of new technologies being designed and created for the Financial Services industry. Scotland, and Edinburgh in particular, is very much at the centre of this activity.”

Ellis agrees: “There is still a lot of interest in financial services. We are advising Standard Life Aberdeen 
on the aggregation of wealth management business, 1825, and with regulatory change, there is opportunity for additional aggregation in this area”.

Private equity is doing well too, says Ellis: “We acted for the Incremental Group [based in Aberdeenshire and Glasgow] which received private equity funding last year and has since gone on to buy a Cheshire company, Gap Consulting, which had 40 employees.”

Life sciences is another sector doing well, says Davidson. “We are also seeing continued activity in the life sciences sector and have been involved in a number of recent deals including Avista Pharma Solutions’ acquisition of Solid Form Solutions and the sale of Genewiz Inc.”

All three experts stress the increasingly international nature of M&A deals done by lawyers in Scotland.

Crawford says: “We have done a number of deals for Accel-KKR, a US private equity house – not just Scottish or even UK deals, but helping them acquire other targets. It’s unusual but happening more and more. As a corporate M&A adviser, you are advising more on the commercial than the legal side, so the advice can transcend geographical boundaries.”

Davidson highlights the fact that CMS advised Edinburgh-based Circularity Capital, a specialist private equity firm, in its investment in 
Berlin-based tech owner Grover.

And Ellis maintains that the international aspect of Burness Paull’s M&A work is becoming increasingly important. He says: “We were at the IBA [International Bar Association] conference this month and made more really good connections with law firms from other jurisdictions. Ensuring we have those relationships across the globe is vital. If a client wants to do a deal in a particular jurisdiction, we want to work with a firm who we have a genuine relationship with and which is the best partner to work with.”

This article appeard in the Scottish Legal Review. A digital version can be found here.