In this special issue of Deals and Dealmakers we include major transactions during the whole of 2023, assess the state of the markets and the prospects for an upturn in activity – while looking to imminent changes in the political landscape.

Although more than 250 Scottish deals completed during 2023 are highlighted in The Business’s exclusive tables this issue – representing a transaction every working day during the year – advisors are hopeful an easing of headwinds will see more activity in the year ahead.

The deals landscape north of the Border has reflected subdued activity in the wider UK market as factors including higher interest rates and inflation took their toll.

With the economic backdrop improving and recent news of several big-ticket transactions, Scottish dealmakers are eagerly anticipating an upturn in activity.

The £2.9 billion offer by Nationwide for Clydesdale Bankowner Virgin Money and private equity giant KKR’s £1.4 billion move for Glasgow-headquartered Smart Metering Systems – along with takeovers of UK-listed Restaurant Group and Hotel Chocolat – have fuelled hopes that the M&A market could be returning with a bang.

The year so far has also seen a clutch of significant fundraisings by Scottish firms, most notably Edinburgh-based gaming company Build A Rocket Boy closing an £86 million Series D fundraising round led by US investor RedBird Capital Partners.

Aberdeen’s Trojan Energy, the on-street electric vehicle charging specialist, also secured £26 million from BGF alongside an £18 million follow-on investment by the Scottish National Investment Bank.

Jonathan Griffiths, corporate finance director at accountants CT, says the disappointing headline figures for deals in the UK last year mask strong activity in some areas.

“While deal volumes were down last year compared to the previous two years and deal completion timescales have generally increased, certain sectors including business services and tech continue to perform strongly,” he points out.

“With continuing significant levels of private equity dry powder, 2024 should see an upturn in deal activity as this capital is deployed in the market.”

However, advisors also caution that although there are reasons for optimism, the political backdrop will increasingly be a factor in the deals landscape in 2024.

Donnie Munro, head of corporate at Harper Macleod, points out that with around half of the world’s population heading to the polls this year, foreign investment coming into Scotland in particular could be impacted by the inevitable uncertainty that elections bring.

In the UK, though many pundits have pencilled in the second half of the year for a vote Munro says that “only feels like putting your glasses on before stepping out into thick fog”.

“While the short-term picture is clearer, businesses want to plan one to two years in advance, if not more,” he stresses.

Laura Falls, partner in the corporate team at Addleshaw Goddard, believes the looming Westminster poll could trigger a flurry of activity from businesses looking to get things done ahead of potential changes to the prospects for sellers.

“But businesses will need to be thinking about activity sooner rather than later to do anything before an election takes place,” she advises.

For the oil and gas sector in particular, the political element is having implications for deals volumes and values.

The extension of the windfall levy announced in the spring Budget and the prospect of further pressure on the sector depending on the outcome of the UK election makes for a highly challenging environment for those looking to do deals around North Sea assets, despite the current focus on the importance of security of energy supply.

Nick Dalgarno, managing director of Piper Sandler in Aberdeen, warns that in a global industry, investors will inevitably be tempted by more stable geographies.

However, he believes the outlook for deal activity in the oil services sector remains strong. “The global subsea industry is back with good long-term prospects and we’re seeing a return of M&A which has been largely on the back burner since 2015/16,” he reports.

Scottish firms with an international reach and those with credible energy transition stories are likely to be particularly attractive.

“Historically, the stability and investment in the North Sea has led us to be an area where service companies invent and invest in technologies and export them to the rest of the world,” said Dalgarno, whose team has just enjoyed its busiest 12 months since 2014.

Advisors will also be closely watching what happens with interest rates which although predicted to start falling soon are expected to remain higher than in recent times. CT’s Jonathan Griffiths says the market is adjusting to an environment where higher yet more stable interest rates now appear to be the norm.

“Higher interest rates will force dealmakers to create more value to ensure they can generate the same level of return that they would have in prior years where interest rates were significantly lower,” he says.

Although both inflation and interest rates are expected to fall, Harper Macleod’s Munro says “it feels as if we are still a long way away from normality”.

However, the benefits of any reduction in interest rates should start to filter through for those sectors most adversely affected by discretionary spending such as hospitality and retail.

Addleshaw Goddard’s Falls says with inflation going in the right direction and the expectation that interest rates will start to come down, the macro-economic factors are in place for an upturn in M&A activity during 2024.

“When interest rates drop, debt obviously becomes cheaper and that helps with M&A, especially for private-equity backed companies where they tend to be highly leveraged. It doesn’t take much of a swing in interest rates one way or the other to be felt in a highly leveraged company.” However, she cautions that even in a more favourable interest rate environment the market isn’t what it was a couple of years ago in terms of sellers’ pricing expectations.

“A key driver of activity will be whether sellers accept this or want to hold out for a recovery. Some sellers will still want to exit but there is definitely a shift around price expectations that needs to be managed and we may see more earn-out mechanisms to reflect that.”

Deals in focus

£8.5M Wobble Genomics, a University of Edinburgh biotechnology spin-out, raised £8.5 million to help commercialise its technology. The funding round was led by Mercia Ventures and BGF and backed by IQ Capital, EOS Advisors and Old College Capital, the university’s venture fund.

More than 100 staff at Glasgowbased architects, Keppie Design are now part-owners of the 170-year-old business. Azets managed the transaction, Ownership Associates provided specialist support with legal advice provided by Bannatyne Kirkwood France & Co.

Edinburgh-based Carcinotech secured £750,000 in the first major deal announced by the British Business Bank from its £150 million Investment Fund for Scotland. The funding was part of a £4.2 million round led by Eos Advisory alongside Maven Capital Partners, Scottish Enterprise, Old College Capital, Investing Women, and existing investors TRICAPITAL, SIS Ventures, Gabriel Investment, and Alba Equity.

Decarbonisation investor Elbow Beach Capital made a £1 million follow-on investment in Glasgow’s Munro Vehicles which is developing all-electric 4×4 vehicles. The investment took Elbow Beach’s commitment to over £1.7 million in Munro Vehicles which recently completed its first production model, the Series-M 4×4 Utility.

Family-owned Hamilton Waste and Recycling (HWR), a construction and demolition collection and processing business, was acquired by leading UK specialist Biffa for an undisclosed sum. The deal saw the 100 strong team at HWR, fleet of 49 vehicles and 1,400 new customers transfer to Biffa. MBM Commercial acted for Hamilton Waste.