KPMG research

Confidence returning to private equity market

Graeme Williams: momentum

Scotland’s private equity market closed out a steady year in 2021, with a record number of midmarket deals, despite total investment still falling short of pre-pandemic values, according to new analysis.

Despite uncertainty caused by COVID-19, both the volume and value of mid-market investments grew year-on-year in 2021.

There were 44 deals worth £2.1 billion in 2021 – the largest number in the last five years and a 55% increase on volumes in 2020 when 29 deals worth £1.7 billion took place.

The new figures produced by KPMG show a welcome return to form, but by comparison with pre-pandemic levels, the value of deals seen in 2021 remains 19% lower than in 2019 when 42 deals worth £2.59 billion were transacted. 

Graeme Williams, director, corporate finance M&A at KPMG UK, said: “Scotland’s private equity market saw confidence return, and pent-up demand released in 2021 after an atypical 2020.

“The momentum we saw at the end of 2020 continued to gather pace into the first half of 2021, and while activity dipped slightly throughout the rest of the year, the levels maintained were still a record high

“In the final quarter of 2021, some clouds began to gather on the horizon, with inflation, supply chain stability, fiscal-monetary policy and COVID-19 variant concerns on the minds of many, however, deals continued to get done.”

The number of private equity exits in Scotland rose from 11 in 2020 to 13 in 2021, also surpassing 2019 levels of exit activity when 10 exits took place. Deal values also increased from £61 million in 2020 to £69 million in 2021. In 2019, Scottish exits totalled £72.9m

KPMG expects 2022 to be the year when the market returns to full force following back-to-back years of disruption for dealmakers and investors.

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Mr Williams added: “There’s no shortage of high quality Scottish businesses in sought-after sectors, such as technology or those that are tech-enabled, and those in the healthcare and life sciences sector, and this, together with the abundance of private equity money which needs to find a home, means the market should flow this year, and could surpass pre-pandemic levels.

“Investor appetite is strong and private equity funds remain eager to deploy their ample dry powder, so healthy levels of activity will continue. It should also be easier to diligence and value companies without so much uncertainty in the market, which in turn will make it easier for private equity houses to move forward with conviction when looking for the best investment opportunities.

“ESG will also be an important driving force that we’ll see more and more in 2022, as it becomes integrated into every area of operations, and part and parcel of what investors expect and look out for.”

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