Investment report

Private equity boosts economy via earnings growth

Incremental Group benefited from private equity

Private equity is making a positive contribution to Scotland’s economy by boosting earnings growth and helping to add jobs.

Scotland’s private equity-backed businesses achieved average annual EBITDA growth of 54% over the latest available three-year-period, according to data obtained by accountancy and business advisory firm BDO.

It says this underlines the significant positive impact that private equity is having on the Scottish economy.

The inaugural Private Equity Value Report from Real Deals, developed in association with BDO, found that Scottish businesses performed broadly in line with the UK average. Nationally, private equity portfolio companies achieved average annual EBITDA growth of 58.9% while annual revenues grew by an average of 22.2% over the same period. 

BDO commissioned the research to understand the impact that private equity investment is having on the growth of the Scottish and UK economy. The data was drawn from the most recent three years’ accounts filed with Companies House. 

The 15 fastest growing businesses in Scotland achieved average annual EBITDA growth of 63% and included Incremental Group, Murgitroyd Group and Commsworld.  They were in a range of sectors from technology to support services, and featured more than one investment from the likes of LDC, Buckthorn Partners and BGF. 

Craig Martin, deal advisory partner at BDO, said: “Despite the challenges of the past three years, this research demonstrates that private equity-backed businesses are a very resilient and dynamic segment of the Scottish economy.

“There’s often a focus on the level of deal activity and headlines around exits but we should also celebrate the value created by investors and management teams working hard to deliver their growth plans.”

The 15 fastest-growing private equity-backed businesses in Scotland created an additional 247 jobs between 2020 and 2022. 

BDO’s latest bi-monthly Economic Engine survey of 500 mid-sized businesses revealed that 19% of Scottish businesses are either currently looking for private equity investment or will do so in the next three months.

However, 62% shared they wouldn’t consider private equity investment with the biggest barriers cited as not knowing how to approach private equity houses or business owners favouring a trade sale with no requirement to be involved post-deal.

Rory McPherson, also a deal advisory partner at BDO, added: “Private equity investment can be a realforce for good as the growth it can deliver also fuels innovation and job creation.

“Looking ahead, there’s a significant opportunity as Scotland is home to so many high-quality businesses. Investors have the capital and appetite to back more entrepreneurs to scale-up and local advisers have the experience to support business owners and PE houses on that journey.”

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