M&A buoyant

‘Deal making summer’ rolls on, says adviser

Graham Cunning
Graham Cunning: appetite for deals continues

An attractive tax regime and abundance of private equity are helping to drive a buoyant deal-making market in Scotland, according to one adviser.

Graham Cunning, head of corporate finance at Azets, who has recently advised on four major transactions, said that despite confidence in the economy faltering, there continued to be a steady flow of trade sales and firms switching to employee ownership.

“With inflation already high and expected to increase further in 2023, bank base rate rising, and continued people and supply chain issues, there is a growing expectation that business confidence will suffer, and therefore deal flow too,” he said. 

“However, the currently attractive tax regime for exit is also helping encourage entrepreneurs consider a trade sale or selling to an Employee Ownership Trust.

“The ready availability of capital from private equity houses backing their investee companies for sector consolidation is also proving to be a major driver of transactions.  Appetite for deals from within Scotland’s SME and corporate community therefore remains buoyant, and 2022 is on track to be our busiest ever year”.

He encouraged business owners planning an exit to bring forward their timelines: “Public finances are under unprecedented pressure and there is the ever-present risk that the benign tax environment may well change under a new Prime Minister.”

Currently, exits to EOTs are effectively free of tax and the first £1m of proceeds from a trade sale is still taxed at 10% (with the balance at 20%) for most people, significantly lower than most income tax rates.

“With so much economic and political uncertainty in the UK, Europe and beyond, it’s difficult to predict the near future with certainty; but we may be currently enjoying the deal making summer.”

Mr Cunning’s deals involved the sale of Protec Engineering to Flogas, the acquisition of Highland Safaris by Crieff Hydro, the sale of International Doors and Windows to an Employee Ownership Trust, and the sale of Capitol Payroll Services to TopSource Worldwide. 

Two of the buyers were funded by investors (DCC and Horizon Capital), backing sector consolidators focused on acquiring complementary businesses as part of their growth strategies.

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