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Scotland 'resilient'

UK trade deal doubts create window for M&A activity

Jonathan Boyers: ‘expect to see more deals happen in the first part of the year’

Doubts over future trading relationships between Britain and the rest of the world will create a window for a flurry of deals in the early part of this year, according to new analysis of mid-market private equity investment.

With Brexit now a certainty the market has been given some clarity, even though terms of trade are yet to be determined, says Jonathan Boyers, head of KPMG’s UK M&A practice.

“This may stimulate a resurgence of PE-related activity across the UK – at least in the short to medium term.

“Companies of all sizes are starting to feel more emboldened to proceed with plans they have had on ice for the past several years. And PE funds remain eager to deploy their ample dry powder.

“Despite a burst of new year optimism, there is nevertheless a recognition that trading conditions remain fragile, and although Brexit is now a certainty, there remains doubt around our future trading relationships once the transition period expires at the end of the year.

“This means we are potentially looking at a narrow window in which to transact – so expect to see more deals happen in the first part of the year, than in the latter months of 2020.”

Activity in Scotland remained resilient throughout the uncertainty of 2019, though there was a sharp fall in deal volume across the UK.

There were 32 deals in Scotland, virtually unchanged on 2018 when 34 were completed. The combined value of last year’s transactions was more than £2.77 billion – a rise of £790 million.

Across the UK, the middle market saw a drop in deal volumes, recording 532 deals in 2019 compared to 623 in 2018, but the combined value of these deals hit £39.9bn – representing a five year high.

James Kergon, KPMG’s head of deal advisory in Scotland, said: “It’s reassuring to see relative resilience in the mid-market environment, both in Scotland, and elsewhere in the UK.

James Kergon: ‘reassuring’

“While Scottish deal volumes were down modestly, values are up substantially due, at least in part, to a wide range of available debt options and an abundance of investment capital.

“Investors also appear to be directing more money towards fewer, larger companies, narrowing the spread of their investments. 

“One of the main drawbacks right now for dealmakers is a lack of availability of growth-hungry, resilient businesses that provide enough opportunity to add value, and we believe that could be another underlying reason behind deal size increasing so substantially.”

Companies of all sizes are starting to feel more emboldened to proceed with plans

– Jonathan Boyers

Mr Boyers added: “After a long period clouded by so much uncertainty, the December General Election at least provided the market with a degree of clarity, and the early signs are there that this may stimulate a resurgence of PE-related activity across the UK – at least in the short to medium term.

“Companies of all sizes are starting to feel more emboldened to proceed with plans they have had on ice for the past several years. And PE funds remain eager to deploy their ample dry powder.

“Long-term stalwarts of the UK mid-market PE community may move up in terms of their deal size focus as they’ve raised ever larger sums, but the mid-market will remain well-served.

“Larger players are establishing enterprise funds; family offices are recruiting former PE fund managers to launch their own similar investment vehicles; and new players from the UK and elsewhere are rushing in to fill the gap.

“Well-run, resilient UK mid-market companies with significant potential for growth should have little trouble finding the capital they need to achieve their ambitions”



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