When the restrictions were implemented in March 2020, a significant number of deals were delayed, postponed or cancelled as business owners and investors quickly turned their attention to business resilience, cash flow management and adapting to rapidly changing market conditions. However, when the COVID lockdown measures began to ease in early summer 2020, there were promising signs of M&A deal flow returning as businesses moved from crisis management to planning ahead.
Generally, given the expected reduction in trading performances across most sectors, organic growth was considered to be difficult for most to achieve in the 6-12 months that would follow. Therefore M&A presented opportunities for businesses looking to get their medium to longer term objectives back on track as was the case with Highland headquartered Global Energy Group’s acquisition of Aberdeen recruitment agency Cammach Bryant which completed in November.
For some, opportunistic M&A was seen as softening the blow to the financial performance suffered, whereas for others, it has been a viable option for improving business reliance to the market conditions.
With capital investment under intense scrutiny, acquirers have a renewed focus on the strategic value that an acquisition would bring with many being more transparent with their acquisition criteria and often looking to pursue off market opportunities.
Following the reduction made by the Chancellor on 11 March to Capital Gains Tax (CGT) relief, there has been much speculation that the relief would be removed or indeed a rate increase in this current tax year. When it was announced on 23 September that there would be no Autumn Statement, and therefore no changes to CGT (or any other tax rates) until Spring 2021, many vendors have sought to accelerate their plans to take advantage of this new window of opportunity, again, adding to the positive momentum shift in the M&A market activity.
Turning attentions to specific sector activity across Scotland, a focus on accelerating ‘all things digital’ has underpinned an increase in the level of M&A and fundraising activity in the technology space as has been widely reported. A notable example of this being the Business Growth Fund being the cornerstone investor in Calnex Solutions plc, an established provider of test and measurement solutions for the global telecommunications sector, as part of its admission to trading on AIM in October 2020.
In the energy sector, energy sustainability continues to be high if not top on the agenda, and there is clear intent from traditional Oil & Gas operators to embrace the challenge of achieving affordable, reliable low carbon energy and assisting in meeting Government and, in some cases, their own emissions targets.
During the year there has been a succession of announcements regarding investment in low carbon energy projects including SSE who in June disposed of a 51% stake in the £3bn Seagreen offshore wind farm project to Total then subsequently selling a 49% stake in the Walney offshore project to Greencoat Capital for £350m in September.
Certain sectors have seen investors and business owners choosing consolidation as the most appropriate option to secure the future of portfolio companies, a trend we expect to continue in 2021. This is highlighted in a couple of high-profile examples of consolidation such as the merger of Fircroft and NES Global Talent to create NES Fircroft which was announced in September 2020 and the recently announced acquisition of Aberdeen based Rever Offshore’s subsea services business by Dutch dredging and heavy lift vessel firm Boskalis.
As for activity in both the construction and property sector, our team have predominantly been advising on how to raise appropriate funding aligned to development needs, looking beyond the traditional and textbook funding solutions. This includes re-financing existing facilities for working capital purposes or securing appropriate bridge financing to purchase developments ahead of proposed forward-funding arrangements. This type of project finance has been much sought across the sectors with student accommodation, care & nursing homes, commercial and residential property most prevalent.
From discussions with clients, prospects and fellow advisors we are optimistic that transaction activity levels will continue to improve throughout 2021 with the current, busy pipeline being replenished by new opportunities with the roll out of the vaccines bringing stability to the majority of sectors.
For further information, or if you have any questions, please contact Callum Gray