After lockdown was imposed in Scotland last March and employees across the country were told to gather their belongings and set up their laptops in their spare rooms or on kitchen tables, all sectors were affected and merger and acquisition (M&A) activity came to a standstill.
But discussions and negotiations were reignited, or started from scratch, after the second quarter of last year. Investor confidence returned to the market in Scotland, with the exception of some of the sectors that have been particularly hard hit by the pandemic. Even against the backdrop of Brexit, international money has continued to come into the country when the right targets are identified.
Sectors that have continued to attract significant interest include renewables, as the focus on reaching net-zero intensifies and pressure increases on all businesses to react to the climate crisis, plus technology and business services, for example with digital solutions coming to the fore during lockdown, and food and drink, which draws a lot of money to Scotland, and infrastructure.
Barry McCaig, partner and head of office, Glasgow at Pinsent Masons, says: “When lockdown happened in March and April 2020 it was initially thought transactional deals would dry up and that is pretty much what happened. But they came back with a bang at the end of summer 2020 and it has been very busy since.”
George Frier, head of corporate finance at Shepherd and Wedderburn, says: “There has been no let-up in activity. Quite the opposite. Over the last year we have landed and completed some very challenging mandates across all sectors, many with international buyers and private equity houses.”
He gives the example of advising Bigblu Broadband in the£90 million sale of its European business to Eutelsat SA, and IndigoVision Group in its takeover by Motorola Solutions. “There is a lot of money looking for a good home so the right business will attract good multiples,” he adds.
Frier’s Shepherd and Wedderburn colleague John Morrison, who focuses on renewable energy and technology, and acted on the acquisition by Epic Games of Tonic Games, developer of Fall Guys, says: “Both the renewables and tech sectors have been particularly buoyant over the last 12 months. On the tech side, we’ve witnessed an influx of capital into the UK market, which has driven significant deal activity and competition.”
Morrison adds that this experience is even more acute in renewables, with offshore wind leasing rounds, such as Round 4, ScotWind and the Celtic Sea, demonstrating the scale of the opportunity in the sector, as well as the high levels of competition. He says: “It is a position that I would expect to continue.”
Claire Armstrong, managing partner of Dentons in Scotland, shares this optimism, saying: “It has been a very buoyant market for M&A and investment transactions.”
Key highlights for Dentons include advising Sigma Capital Group on a £188m recommended all-cash offer for its entire issued and to-be-issued ordinary share capital by Six Bidco, and advising Bute Island Foods on its sale to Canadian dairy company Saputo.
She adds that the real estate investment market has remained surprisingly less subdued than anticipated and it has not all been driven by money from overseas.
Neil Burgess, partner and head of corporate and commercial at Brodies, says: “Clients have shown themselves to be adaptable and resilient in the face of significant change. Following the second quarter of 2020, transactional activity picked up, and this momentum was maintained through to the end of the year and beyond.”
Since early 2021, the M&A market has continued its resurgence, according to Burgess, with deals that had been put on hold in spring and summer 2020 being revived as private equity investors, in particular, returned to the market.
He adds: “What we have seen is the gradual easing of the pandemic restrictions and the vaccine roll-out combining with this pent-up investor demand and the availability of capital to drive market confidence and a renewed sense of optimism.”
Burgess has seen clients become increasingly confident in implementing their strategic plans for life post-pandemic. Meanwhile, vendors have started bringing their assets to market, and this is fuelling a sense of buoyancy.
Over the past year, Burgess highlights acting for Kersia Group, a French biosecurity and food hygiene business, in its acquisition of UK-based Holchem Group from Ecolab. This created the second-largest food safety business in Europe. Brodies also advised Scotland-based Omega Diagnostics Group on its fundraising on AIM.
Burgess adds: “There remains a strong appetite for inward investment in many key sectors such as technology, food and drink, infrastructure and business support services, both on a Scottish and UK level.
“A good example is Hong Kong’s Rare Whisky Holdings’ recent multi-million-pound acquisition of a 49 per cent stake in Aberdeenshire-based auction site and family business, Whisky Hammer.”
Investment is forthcoming for innovative projects in renewables, and equity funding continues to be available for SMEs from both the private sector and government agencies across a wide range of sectors, particularly technology, healthcare, pharmaceuticals and life sciences, according to Burgess.
“The energy transition too is a great opportunity, particularly for the north-east, where innovation and cleantech is making headway and a strong ecosystem has been created to nurture and support start-ups,” he says.
Looking at the SME market and private company deals in Scotland and across the UK, Michael Currie, corporate partner at Aberdein Considine, says there have been no major signs of Covid-19 or Brexit affecting the motivations of sellers or buyers of businesses.
While the pandemic may have delayed some sellers, he says there is now a lot of activity and consolidation. Some of this movement is arising from succession planning and perceptions of regulatory risk motivating owners to sell up.
One trend he has identified is of more deals being funded by specialist lenders or by way of deferred payments as lenders continue to take stock after the pandemic, including the Coronavirus Business Interruption Loan Scheme.
Peter Lawson, chairman at Burness Paull, says: “Employment issues, finance and funds, healthcare, green energy projects and ESG [environmental, social, and governance] investments have all been areas that have seen significant upticks in activity and we’ve been able to drive forward and grow along with clients.”
While he acknowledges that deal-making transactions did see a dip in the first lockdown, he says the market has bounced back strongly and its expertise in private equity across the UK and internationally has seen his firm’s teams involved in high-profile deals, particularly in the tech sector.
Some deals Lawson highlights from the last year include Burness Paulladvising on the Calnex Solutions’ initial public offering – Scotland’s first IPO in more than two years –and supporting wearable tech company PlayerData on its equity investment by Hiro Capital.
Allan Wernham, managing director (Scotland) at CMS, says his firm continues to have a strong volume of work, such as acting for Nuveen Real Assets on the£1 billion retail-led regeneration of the St James Quarter in Edinburgh. It also advised Norwegian private equity investor HitecVision on the acquisition of more than15 oil and gas fields from Exxon, one of the largest energy deals in Scotland in 2021.
Wernham says deals are being driven on the buyers’ side by a combination of both corporates that have stockpiled cash from the pandemic now looking for opportunities and private equity firms with record levels of funds to be invested.
He adds: “Fuelling deal activity on the sellers’ side, there are many businesses which struggled through the pandemic and are now looking for an exit. We’ve also seen purely distressed sales, and several SME owners who are looking to sell as part of a change in lifestyle brought on by the uncertainties they’ve experienced over the past 20 months.
“It appears that private equity and financial buyers may be better placed than strategic buyers in the current market. Private equity firms in particular have their own internally focused motivations to invest sooner rather than later due to the fixed life nature of private equity funds.
“We’re also seeing a high level of activity across equity markets at present, particularly fundraising by corporates looking tocapitalise on new opportunities. Renewable energy and associated businesses is a particularly hot sector at present, driven byclimate change initiatives and the focus on COP26.”
This article first appeared in The Scotsman’s Legal Review 2021