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Appetite falls

Scottish deals slow to return after private equity slump

james kergon

James Kergon: evidence of ‘retreat and recover’

Scotland’s deal activity has been slow to recover after a slump last year in private equity activity. 

Mid-market transactions involving private equity investors in Scotland fell by half from 45 in 2019 to 23 and combined value was also down by half (49%), from £3.21 billionn to £1.55bn.

Data from KPMG shows that across the UK, the value and volume of mid-market PE deals – which covers deals valued at between £10m and £300m – plummeted by a third on the previous year. In total, 452 mid-market transactions completed during the year, with a combined value of £28.45bn.

However, while total annual deal volumes were ultimately hampered by the cliff-fall seen in the second quarter, there was a clear bounce-back in activity in Q3 and Q4.

Deals that had been put on hold sprung back to life, and PE investors, still sitting on substantial reserves of capital, mobilised once more, resulting in over two hundred transactions completing in each of the final two quarters.


James Kergon, KPMG’s head of deal advisory in Scotland, said: “Across the UK we’re seeing what we’ve described as a ‘retreat and recovery’ picture.

“Naturally, the pandemic drove a significant, sharp collapse in deal activity with investors looking to protect their portfolio. Across England, activity and optimism seem to be returning, but there are signs that the Scottish deal market has been slower to pick back up.

“2019 was however a particularly strong year for Scottish investments, so, we remain optimistic that the climate here will steadily improve.

“Private equity investors are cash rich and there remains an appetite to invest in the right type of businesses. The additional concerns over forthcoming changes to the capital gains tax regime is also helping to drive a short surge in aiming to complete deals before the end of the financial year.

“The crisis also served to sharpen the focus of corporates on building resilience and efficiency by divesting non-core assets, an area in which we have seen strong private equity interest.” 

While mid-market deal volume and value continued to struggle in 2020, larger deals remained more resilient, prompting fears investors of a ‘flight to quality’ on the part of PE investors. 

Jonathan Boyers, head of M&A at KPMG, commented: “Firstly, we have seen a distinct lack of ‘mid-range’ deals coming through that previously may have attracted a modest multiple of 5x to 7x EBITDA.

“This kind of transaction has been harder to execute because it is typically driven by lower-growth businesses in sectors that have been more impacted by the pandemic, such as manufacturing or industrials.

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“Additionally, those smaller deals that did manage to get over the line saw reduced multiples due to the prevailing economic circumstances.

“Conversely, multiples in those sectors that continued to perform strongly throughout the pandemic, such as TMT and tech-enabled businesses, have remained high – and in some cases, have actually risen – with more capital chasing fewer high-quality deals.

“However, the fundamentals that underpin the PE market remain strong. There are enormous amounts of dry powder available.

“Business owners who have been waiting for a few years now for the perfect opportunity to bring in investment or sell, and who may be mindful of an imminent increase to capital gains tax, are now keen to push the button.”

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