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Recent Private Equity News Scotland: Key Deals and Trends to Watch

Private equity investment in Scotland has seen a significant uptick in the last few years. According to recent reports, the first half of 2022 saw private equity deal activity surpassing £2 billion, surpassing pre-pandemic levels. This is a positive sign for the Scottish economy, as private equity investment is an important driver of growth for mid-market businesses.

Despite the positive outlook, the current state of private equity in Scotland is not without its challenges. The impact of inflation and technology on private equity is a key concern, as these factors can significantly affect investment decisions. Additionally, the economic impact of Covid-19 on private equity cannot be ignored, as the pandemic has caused significant disruptions to the global economy. However, despite these challenges, the private equity industry in Scotland remains resilient, with investors showing confidence in the market.

Key Takeaways

• Private equity investment in Scotland has seen a significant uptick in recent years, with deal activity surpassing pre-pandemic levels in the first half of 2022.

• The impact of inflation and technology on private equity, as well as the economic impact of Covid-19, are key concerns for the industry in Scotland.

• Despite these challenges, the private equity industry in Scotland remains resilient, with investors showing confidence in the market.

Current State of Private Equity in Scotland

Private equity investment in Scotland has been steadily growing over the past few years, with a record amount of mid-market deals being closed in 2021 despite total investment still falling short of pre-pandemic values. According to KPMG UK, Scotland's mid-market businesses attracted a record amount of private equity during 2022, with a total of £3.5 billion spent, surpassing pre-pandemic levels. This shows that the private equity market in Scotland is outperforming the rest of the UK, with deal values hitting a five-year high.

Despite the uncertainty caused by Covid-19, both volumes and value of mid-market investments grew year on year in 2021. In the first six months of 2022, private equity investment in Scotland's mid-market businesses surpassed pre-pandemic levels after £2 billion was spent. This is a significant milestone for the Scottish private equity industry, which has been growing steadily over the past few years.

KPMG's Corporate Finance team in Glasgow has been instrumental in driving the growth of private equity investment in Scotland. They have been providing expert advice and support to private equity investors, helping them to identify attractive investment opportunities and navigate complex market conditions. KPMG's latest analysis shows that mid-market transactions involving Scottish private equity investors in 2020 were down by nearly half from 2019, and the combined value of these deals was down 49% in FY20 from FY19.

Scotland has a vibrant and dynamic economy, with a diverse range of industries and sectors, including technology, life sciences, energy, and financial services. This has made it an attractive destination for private equity investors, who are looking for high-growth companies with strong potential for long-term returns. With the Scottish private equity market outperforming the rest of the UK, it is clear that Scotland is a great place for investors to find attractive investment opportunities.

In conclusion, the current state of private equity in Scotland is positive and growing. The private equity market in Scotland is outperforming the rest of the UK, and there are plenty of attractive investment opportunities for investors. With the support of KPMG's Corporate Finance team in Glasgow, private equity investors can navigate complex market conditions and identify high-growth companies with strong potential for long-term returns.

Impact of Inflation and Technology on Private Equity

Private equity activity in Scotland has remained steady, despite a fall in mid-market deal values in H1 2023, according to the latest Mid-Market Private Equity report from KPMG UK. However, private equity firms are facing a number of challenges, including inflation and the need to embrace new technologies, in order to stay competitive.

Inflation is a growing concern for private equity firms, as it can erode the value of their investments over time. According to a report by Bain & Company, private equity firms are facing an inflation challenge, as the average leveraged buyout multiple has jumped to 12.3 times earnings before interest, taxes, depreciation, and amortization (EBITDA), from 6.8x in 2000. This has led to concerns that private equity firms may be overpaying for assets, which could impact their returns.

To combat this, private equity firms are looking to invest in companies that are less susceptible to inflation, such as those in the technology sector. Technology is also seen as a key driver of growth in the private equity industry, as it can help firms to identify new investment opportunities and streamline their operations.

Graeme Williams, Head of Private Equity at KPMG in Scotland, said: "Technology is transforming the private equity industry, enabling firms to work more efficiently and effectively. It is also creating new investment opportunities, particularly in areas such as fintech and healthtech."

Private equity firms are also looking to invest in companies that are well-positioned to take advantage of the digital economy. This includes companies that are developing new technologies, such as artificial intelligence and blockchain, as well as those that are using technology to disrupt traditional industries.

Despite the challenges posed by inflation and technology, private equity firms remain optimistic about the future of the industry. According to the KPMG report, positivity is returning to the UK's M&A market in 2023, as expectations adjust, and firms are sitting on record levels of dry powder, which they are looking to deploy in the coming months.

Key Players and Their Roles

Private equity firms play a significant role in the Scottish market, investing millions of pounds into businesses across various sectors. Here are some key players and their roles in recent private equity news in Scotland:

Director for Corporate Finance M&A

Graeme Williams, Director for Corporate Finance M&A at KPMG UK, notes that private equity flows in Scotland have been steady during 2021. According to Williams, 44 private equity deals worth £2.1bn were completed in 2021, which is double that done in 2020.

Uncertainty

Despite the steady flow of private equity deals in Scotland, there is still some uncertainty in the market. The latest data from KPMG shows that mid-market transactions involving Scottish private equity investors in 2020 were down by nearly half from 2019, and the combined value of these deals was down 49% in FY20 from FY19.

Consumer

Private equity and venture capital firms invested £895 million into businesses in Scotland in 2021, with a significant amount going into the consumer sector. This was a huge increase on previous years, with £213 million and £271 million invested in 2020 and 2019, respectively.

Healthcare

The healthcare sector has also seen significant private equity investment in Scotland. In 2021, private equity firm Inflexion invested in Scottish healthcare company ICS Learn, which provides online educational courses for healthcare professionals.

Overall, private equity firms continue to play a crucial role in the Scottish market, with significant investment being made across various sectors. However, there is still some uncertainty in the market, and it remains to be seen how this will affect future private equity flows in Scotland.

Economic Impact of Covid-19 on Private Equity

The Covid-19 pandemic had a significant impact on the global economy, and the private equity industry was not immune to its effects. As countries around the world went into lockdown, deal activity slowed down, and fundraising became more challenging. However, as the world adjusted to the new normal, private equity firms adapted their strategies to continue investing.

In Scotland, private equity flows remained steady during 2021, with a record number of mid-market deals, despite total investment still falling short of pre-pandemic values. Both volumes and value of mid-market investments grew year on year in 2021, despite uncertainty caused by Covid-19. This momentum is expected to continue in the coming years, with investor appetite for Scottish mid-market businesses remaining strong.

However, the cost-of-living crisis and energy transition are expected to have a significant impact on the Scottish economy in the coming years. Private equity firms will need to consider these factors when evaluating potential investments in the region.

Glasgow is emerging as a hub for private equity activity in Scotland, with a number of firms setting up operations in the city. The city's skilled workforce, low cost of living, and supportive government policies make it an attractive location for private equity firms looking to invest in the region.

ESG factors are also becoming increasingly important for private equity firms, with heightened scrutiny on the industry's impact on the environment and society. Private equity firms will need to consider these factors when evaluating potential investments and developing their investment strategies.

Overall, while the Covid-19 pandemic had a significant impact on the private equity industry, firms have adapted their strategies to continue investing. Private equity flows in Scotland remained steady during 2021, with investor appetite for mid-market businesses remaining strong. However, private equity firms will need to consider the cost-of-living crisis, energy transition, and ESG factors when evaluating potential investments in the region.

Performance Analysis Over the Last Five Years

Over the last five years, Scotland's private equity market has been performing well, outperforming the rest of the UK in terms of deal values. According to a recent report by KPMG UK, the Scottish private equity market has seen a steady flow of investments throughout 2021, with 44 deals worth £2.1bn recorded, the largest number in the last five years. This reflects a 55% increase on 2020 volumes when 29 deals worth £1.7bn took place.

Despite the uncertainty caused by the pandemic, both volumes and value of mid-market investments grew year on year in 2021. In 2022, Scottish mid-market businesses attracted a record amount of private equity, with a total of £3.5bn spent on 51 deals, reflecting a year-on-year increase in value of 69% compared to 2021 when 41 deals worth £2bn were completed.

The life sciences sector has been particularly active in attracting private equity investment, with a number of high-profile deals completed over the last five years. This reflects the growing importance of the sector in Scotland's economy, with many companies in the industry seeing significant revenue growth.

However, there have been challenges in the private equity market, including a shortage of quality assets and increasing competition from other sources of funding. This has led to some private equity firms being more cautious in their investment strategies, focusing on quality over quantity.

Despite these challenges, the private equity market in Scotland remains strong, with a number of successful deals completed over the last five years. Year on year, the market has continued to grow, with the largest number of deals completed in 2021. This reflects the resilience of Scotland's mid-market businesses and the ongoing demand for private equity investment.

Future Predictions and Investor Confidence

Private equity investment has rebounded in Scotland, with investor confidence returning and sellers becoming more willing to sell their businesses. This trend is expected to continue, with investors showing increased interest in the Scottish market.

One factor contributing to this increased confidence is the stability of Scotland's supply chain. The country has a diverse range of industries, from oil and gas to tourism, which helps to mitigate the risks associated with a single industry downturn. Additionally, fiscal and monetary policies have been supportive of businesses, helping to maintain stability and investor confidence.

Private equity exits are also expected to increase, with many businesses reaching maturity and looking for an exit. Sought-after sectors include life sciences, which has seen significant growth in recent years, as well as technology and renewable energy.

ESG (Environmental, Social, and Governance) considerations are also becoming increasingly important for investors. Companies that prioritize sustainability and social responsibility are likely to be more attractive to investors, particularly in the wake of the COVID-19 pandemic.

Venture capital investment is also expected to increase, particularly in the technology sector, which has seen significant growth in recent years. Mergers and acquisitions are also likely to increase, particularly as businesses look to expand and diversify.

However, there are global headwinds that could impact investor confidence, such as geopolitical instability and changes in consumer spending. Additionally, supply chain disruptions caused by the pandemic could continue to impact businesses in the short term.

Overall, while there are potential challenges on the horizon, the outlook for private equity investment in Scotland remains positive, with diverse industries, supportive policies, and a growing focus on sustainability and social responsibility all contributing to investor confidence.

Resilience Amid Recession and Capital Gains Tax Implications

Private equity has long been recognized as a resilient asset class that can weather economic downturns. Recent data shows that this trend has continued into the present day. Despite the challenges posed by the pandemic, private equity firms have shown remarkable resilience, with deal activity remaining robust and exit activity reaching record highs.

Private business owners looking to sell their companies may be particularly well-served by turning to private equity. The pent-up demand for deals done during the pandemic has led to a record high in deal values, with a year-on-year increase of 25% in the first half of 2021. This trend is expected to continue as the economy recovers.

However, private equity firms must also navigate the implications of changes to the capital gains tax regime. The UK Labour party has proposed a crackdown on private equity tax loopholes, which could have significant implications for the industry. Private equity firms may need to adjust their strategies in response to these changes.

Despite these challenges, private equity remains a strategic imperative for businesses in a variety of sectors, including business services and industrials. Private equity firms have demonstrated the breadth and depth of their expertise in navigating the geopolitical and economic challenges of recent years.

While soft growth and drop off in profit margins may pose challenges for private equity firms in the short term, the overall outlook remains positive. Private equity firms have shown a remarkable ability to adapt to changing circumstances and return to form, even in the face of significant challenges.

Opportunities and Challenges for Scottish Businesses

Scottish businesses are currently facing both opportunities and challenges in the private equity market. The private equity investment in Scottish mid-market firms has cooled in the first half of 2023, marking a 25% year-on-year drop, as per the latest Mid-Market Private Equity report from KPMG UK. However, the Scottish opportunity is still significant and growing, with increasing financial firepower of private equity firms.

One of the challenges for Scottish businesses is geopolitical instability, which can impact the private equity investment and deals. The concerns around the Covid-19 variant and the ongoing pandemic have also impacted the private equity market. However, despite these challenges, Scottish private equity has outperformed the rest of the UK, with deal values hitting a five-year high.

Another challenge is the competition from London and Edinburgh, which are both attractive destinations for private equity investment. However, Scottish businesses can leverage their strengths, such as a growing start-up ecosystem, to attract private equity investment. For instance, Par Equity, a Scottish-based venture capital firm, has seen a 55% increase in investment in the first half of 2023.

Scottish businesses can also leverage their strengths in the software and real estate sectors, which have seen a 19% lower decline in private equity investment compared to other UK regions. Dealmakers and the Director of Corporate Finance M&A at KPMG UK have also highlighted the potential for Scottish businesses in the North of Britain.

In summary, Scottish businesses face challenges in the private equity market due to geopolitical instability, competition from other regions, and concerns around the Covid-19 variant. However, they also have opportunities to leverage their strengths in the growing start-up ecosystem, software, and real estate sectors, and attract private equity investment.

Frequently Asked Questions

What are the latest private equity deals in Scotland?

According to recent analysis by KPMG UK, private equity investment in Scotland's mid-market businesses has surpassed pre-pandemic levels. In the first six months of 2022, £2.1bn was spent on 35 private equity deals. The year 2022 saw a record amount of private equity investment in Scotland, worth £3.5bn, with 51 deals involving Scottish firms completed.

Which companies in Scotland have received private equity funding recently?

In 2022, there were several notable private equity deals involving Scottish companies. For example, Vintage Acquisitions Limited acquired a majority stake in the Scottish-based company, Cask Traders. Additionally, Scottish mid-market businesses such as John Lawrie Group, M Squared Lasers, and Incremental Group received private equity funding.

What is the current state of the private equity market in Scotland?

Despite the uncertainty caused by Covid-19, Scotland's private equity market has remained steady. In 2021, there was a record number of mid-market deals, with both volumes and value of mid-market investments growing year on year. Private equity investment in Scotland's mid-market businesses has surpassed pre-pandemic levels, with a record amount of private equity investment in 2022.

How has Vintage Acquisitions Limited performed in the private equity market?

Vintage Acquisitions Limited has made several notable acquisitions in the private equity market, including the acquisition of a majority stake in Cask Traders, a Scottish-based company. The company has also invested in other mid-market businesses, such as John Lawrie Group, a metal recycling company based in Aberdeen.

What is the latest news on Cask Traders and their involvement in private equity?

In 2022, Vintage Acquisitions Limited acquired a majority stake in Cask Traders, a Scottish-based company that specializes in the sale of rare and collectible whiskies. The acquisition was part of Vintage Acquisitions Limited's strategy to invest in mid-market companies in Scotland.

What are the predictions for the future of private equity in Scotland?

Despite the uncertainty caused by Covid-19, the future of private equity in Scotland looks promising. The growing interest in mid-market businesses in Scotland is expected to continue, with more private equity firms looking to invest in the region. Additionally, the Scottish government has introduced several initiatives to support the growth of the private equity market in Scotland, such as the Scottish Investment Bank.

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