finance

Scottish businesses pursue growth as M&A activity ramps up



Mergers and acquisitions (M&A) are booming. Across the country we’re seeing deal activity move at such a pace that this year’s levels are on course to surpass 2020 by a considerable margin.

Covid-19 has prompted a change in strategy for the majority of businesses. It has accelerated business plans as management teams moved to take advantage of opportunities that have arisen as a result of the ‘new normal’ ways of working.

And for many firms, particularly corporates, the fluctuating economic environment has meant stepping up M&A activity that was planned for the future or, in some cases, introducing new strategies to cope with a very different outlook.

Some of Scotland’s most active sectors, such as technology and energy, have seen M&A activity continue throughout the pandemic.

Investors and corporate acquirers will now be paying close attention to businesses that are more reliant on consumer spend. We’re already seeing improved trading for casual dining, retail and leisure firms as these sectors reopen, which could translate into deal activity.

M&A continues to be one of the most attractive ways for firms to achieve growth. Our latest Backing Business Ambition Pulse Poll found three in five (58%) UK business owners are planning M&A activity over the next year, with more than half (54%) doing so to pursue growth in new markets.

This trend is likely to continue as we move further out of lockdown and businesses assess their next steps for growth. In Scotland, our M&A team is supporting a busy pipeline of transactions, including advising a leading manufacturing business on multiple acquisitions.

We can also expect more business owners that have been waiting for the right opportunity to bring in investment or exit to act. We are advising shareholders on the sales of businesses across the food and drink, IT and business services sectors, and our Backing Business Ambition Pulse Poll found a fifth (21%) of business owners said they were looking to divest or sell their firm over the next 12 months.

Many owner managers have their own personal wealth tied up in their firm, and the pandemic has highlighted how fragile business conditions can really be. As a result, many are looking to diversify their wealth or retire now before the Capital Gains Tax rate increases as many predict.

Looking ahead, strong appetite for quality Scottish businesses at home and overseas, a low interest rate environment and an abundance of capital in circulation – particularly from private equity investors – combines to make a positive outlook for the country’s M&A market.

For us at KPMG, it will continue to be a busy time, advising owners and management teams on the best steps to take to chart a way through the challenges of a post-pandemic world and to seize the new opportunities for growth that are emerging.

Graeme Williams is a director in the corporate finance team at KPMG in Glasgow



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