Scottish private equity investment rebounds as confidence returns - KPMG study

Scottish private equity investment rebounded in the first half, as investor confidence returned and sellers brought their assets to market, a new report reveals.

The volume of deals across the country jumped 54.5 per cent compared with the first half of 2020 - a period hard hit by the first period of lockdown - and by 13.3 per cent compared to the second half of last year.

Meanwhile, the value of deals completed in the first half of 2021 rose 17.5 per cent, year on year, according to the latest analysis from KPMG.

On a quarterly level, the first three months of the year saw deal volumes in Scotland rise by 12.5 per cent on a year earlier, while the second quarter saw the volume of transactions surge by 166.7 per cent on Q2 2020 levels. The deal value also rose significantly, up 353.5 per cent, as markets regained traction.

James Kergon, Scotland senior partner at KPMG: 'The burst of transaction activity we’ve seen in [the first half] is a strong indicator that the bounce-back is well underway.'

James Kergon, Scotland senior partner at KPMG, said: “Many predicted 2021 as the year for greater stability and increased market confidence, and the burst of transaction activity we’ve seen in [the first half] is a strong indicator that the bounce-back is well underway.

“The momentum from Q4 2020 picked up pace in Q1 2021 as pent-up demand started being released. Deals that had been put on hold in spring and summer 2020 were revived as private equity investors returned to the market with renewed appetites and plenty of cash to deploy.

“A number of mid-market deals which had been held back, initially because of Brexit, and then the pandemic, finally came racing out of the blocks driving up both deal values and volumes.”

He added: “The flurry of activity in Q1 was also fuelled by the rush to complete deals ahead of the anticipated changes to the capital gains tax regime that many expected in March 2021’s spring Budget.

“In Q2, mid-market private equity activity levelled off somewhat and has now returned to pre-pandemic levels, and after the last 16 months that we have had, it’s phenomenal to see activity this high, this fast.”

UK-wide, KPMG’s latest study of UK transactions involving mid-market private equity investors showed a burst of activity, as 377 deals were completed in the first half with a combined value of £20.7 billion – levels which have not been witnessed since the first half of 2017, the firm noted. This is a significant increase when compared to the same period in 2020, KPMG added, which saw 260 deals with a combined value of £14.9bn.

The picture for the UK’s private equity market overall was similar, with soaring deal volume and value levels which haven’t been seen since 2017.

Kergon added: “As vendors and investors moved to virtual meetings and digital transactions, the working efficiencies created by the impact of the pandemic also proved fruitful, as deals were progressed quickly and efficiently both in Scotland and the rest of the UK.

“However, as people begin to travel and meet in person again, I believe this may pose some challenges in maintaining the exceptional level of activity seen in Q1.”

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