This year is off to a strong start already but it looks as though activity in the Scottish debt market could surpass expectations as the year progresses. As prevailing market conditions continue to improve, many managing directors are now looking to secure economic growth, with banks, investors, and other debt financiers back in the market and keen to satisfy current demand for funding.
Our own experience confirms that the increase in activity is set to continue and build on the recovery seen in 2014. This comes against the backdrop of an improving performance for the overall UK economy. The Organisation for Economic Co-operation and Development (OECD) has suggested the UK’s growth rate is now the highest in the G7 leading nations at 2.6 per cent. Low inflation and continued low interest rates are supporting a period of increased activity – and with GDP growth expected to continue for the foreseeable future, confidence in the business community is on the up.
This upturn in the market has encouraged businesses to seek fresh financial packages in order to help meet operational costs and to finance future expansion. This has had a knock-on effect for our own Banking and Finance team, which has acted as lead counsel on more than 80 deals in 2014 with an aggregate debt value of more than £1 billion. The deals covered a broad range of sectors including energy, property (including housing and construction), food and drink, healthcare, and manufacturing.
We are seeing a marked upswing in the number of deal completions with a large number relating to the provision of new money, rather than refinancing of existing liabilities. Activity is increasing in a number of key sectors and we have also seen a resurgence of MBO deals as business owners seek to pass on the product of their efforts into the hands of their management team who are ready to take on the next challenges. We expect to see merger and acquisition activity continue, as consolidation and new alliances help to strengthen business cases, align talent, and increase financial stability.
We have also been aware of the growing availability of development funding, especially where this is in conjunction with a trading business or where there are opportunities to pre-let developments. We have been involved in development finance deals for care home providers looking to build new care homes or for existing care homes to be adapted to comply with recent regulatory changes governing the layout and management of care homes.
The utilisation of invoice discounting, factoring, and other forms of asset based lending is being embraced by a growing number of businesses. Any stigma associated with these forms of finance has gone and financial directors are alive to the cashflow benefits that can be derived as a result. A number of finance providers are offering funding packages which blend traditional senior debt, working capital, and asset-based lending facilities to maximise the amount of finance available to trading businesses.
The sheer breadth of different deals with which we have been involved indicates a much improved business climate on the whole. The signs are good that the momentum gained last year will continue, with many of our clients keen to grow and to make targeted acquisitions where there is a synergy with their existing business. A number of real estate portfolio deals have already been completed this year and there is a clear appetite for acquisitions of quality portfolios, with debt funding readily available where quality is evident to funders.
The resurrection of the Scottish Government’s plans to create a Business Development Bank to support small- and medium-sized enterprises is welcome news and would be a boost to the economy in general. If the Business Development Bank is able to deliver against its stated objectives, there is a real potential that further high growth businesses and entrepreneurs would be attracted to do business in Scotland.
While the market still faces a number of challenges, our experience tells us that now is a time of great potential. With the Budget and a general election not far off we are hoping to hear details of tax breaks designed to stimulate further investment and growth. Some of these incentives could be short term and it is likely that businesses with strong business plans and the right team of professional advisers will be best able to navigate and take advantage of opportunities in the market.
• Tom Speirs is head of banking at HBJ Gateley www.gateleyuk.com