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Deals still being done despite weak confidence.

Byline: PERRY GOURLEY

Given the continuing uncertain political backdrop it is perhaps not surprising that overall corporate transaction activity in Scotland remains relatively subdued.

However, a flurry of developments which will see Scotland's tally of stock market quoted firms shrink further will be a disappointment for Scotland's advisor community.

As well as the high-profile departure of Goals Soccer Centres from the market during the third quarter, another two - Eland Oil & Gas and IP specialist Murgitroyd - look set to fall to takeover deals announced during the period.

The high level of PLC activity contrasted with the overall deals market during a quarter when the lower transaction levels seen in the first half of 2019 continued.

The 200 deals that took place took the total for the first nine months to 606, down almost 13 per cent on the same period last year, although a spike in transactions in September raised hopes of increased activity in the run-up to the year end.

Neil McGill, managing director of private equity firm Cairngorm Capital, says lower transaction volumes are understandable against a backdrop of global macro instability and political uncertainty at home.

"What is encouraging is that there remains the will and the appetite from international trade acquirers to do deals. Strategic buyers are able to see through short-term uncertainty when high quality assets become available," he points out.

David Kirchin, head of corporate at Addleshaw Goddard in Scotland, says his team saw "real progress and interest in transactions in the last quarter, with a key theme being the continued presence and appetite of investor capital. It is notable that companies and investors based overseas continue to see strong businesses and opportunities in the UK".

The delisting of East Kilbride five-a-side operator Goals came shortly before administrators from Deloitte were appointed and the business sold to new owners backed by private equity firm Inflexion and Soccerworld, which runs five centres in Scotland and England.

Aberdeen-headquartered Eland Oil & Gas, which is focused on interests in Africa, was acquired by Nigeria's Seplat Petroleum in a deal valuing it at around PS382m.

Murgitroyd, Scotland's only listed firm of patent and trademark attorneys, also agreed a PS63m takeover deal with private equity firm Sovereign Capital Partners.

Graeme Bruce, partner at law firm CMS, says that while regular sales of Scottish PLCs are to be expected, there has not been a healthy pipeline of IPOs to take their place.

He adds: "Although there are numerous reasons for this, it's this lack of Scottish IPOs that has been unhealthy for our economy. Scotland has lagged behind other regions in the UK in this area for too long."

In a rare bit of positive news for Scotland's quoted sector, the team behind Aberdeen's Faroe Petroleum, which was bought by DNO in 2019, floated a new North Sea-focused business, Longboat Energy.

Acquisitions and sales were the only part of the Scottish deals market that saw an increase in activity during the period, driven mainly by high demand from overseas buyers.

Graham Cunning, head of corporate finance with Campbell Dallas, says there has been a "significant shift" in the M&A market in recent years.

"The rise of the overseas buyer is partly down to the attractive pricing of UK corporates as a result of the weakness in sterling.

"That's not to say that UK buyers aren't still around but the political and economic uncertainty of the last few years made them more cautious."

In a deal that made it on to the back pages too, Sir Tom Farmer and Rod Petrie's HFC Holdings sold a majority shareholding in Hibernian FC to US businessman Ron Gordon in a deal advised on by Pinsent Masons partner Barry McCaig.

McCaig said Hibs was a "really attractive proposition".

"It is a sustainable, professionallyrun sporting business, it owned its own ground and training ground and it had a benevolent shareholder."

McCaig points out that factors such as the youth development pipeline capable of bringing through home grown talent were important.

"Ron Gordon is the latest in a growing number of American entrepreneurs who have invested in our national game.

"I wouldn't be surprised if Scottish football clubs continued to generate 2018 further international interest in the seasons ahead."

8 6 of Deals Number 4 In another football deal concluded after the quarter end, DWF's Scottish corporate team advised the owners of Partick Thistle on the sale of a majority stake to fan and EuroMillions winner Colin Weir.

2 0 Sco Non Sco O/seas Total acquisitions/sales 330 The latest quarter saw another clutch of Scottish technology companies fall into the hands of overseas buyers, a trend which David Allan, corporate finance partner at law firm Davidson Chalmers Stewart, argues should be viewed as a positive.

2019 2018 264 198 of Deals Number 132 66 "At some point an exit will be the right thing to do, to provide the support and infrastructure to allow it to progress to the next level and provide liquidity for shareholders.

0 MBO/Is Non Sco O/seas Total Sco 15 new issues/jvs "If the correct buyer happens to be from overseas, that should be irrelevant and may indeed benefit the Scottish economy."

2019 2018 12 180 2019 2018 9 of Deals 144 Number The quarter's deals included the sale of deltaDNA, a data analytics business that works with many of the world's biggest gaming companies, to California-based Unity Technologies.

6 108 of Deals 3 Number 72 0 Par Equity and the Scottish Investment Bank exited the 36 Sco Non Sco O/seas Total reconstructions Edinburgh-based firm as part of the deal advised by GP Bullhound.

ppps 15 15 2019 2018 Paul Munn, partner at Par Equity, described deltaDNA's success as a "classic story of selling shovels to gold miners".

2019 2018 12 12 of Deals 9 9 of Deals Number "If you can offer an incredibly valuable, highly specialist service to companies in a rapidly growing market, you have the potential for a very successful business of your own," he says.

Number 6 6 3 3 0 0 Sco Non Sco O/seas Total Sco Non Sco O/seas Total Other deals involving US buyers included food delivery giant Deliveroo, which is opening a Scots technology base - its first outside London - after acquiring Edinburgh software firm Cultivate, which had already been working with Deliveroo on its payment system for three years.

specialist banking 170 2019 2018 136 102 of Deals Number 68 all deals In the life sciences sector, Edinburgh gene therapy specialist Synpromics was acquired by North Carolina-based AskBio but will remain headquartered in Scotland. Calculus Capital is understood to have made a handsome return on its PS5.6m total investment in Synpromics since 2015.

34 140 Average: 67 Total: 606 Average: 77 Total: 695 2019 2018 0 Sco Non Sco O/seas Total 112 84 In one of the biggest deals in the food and drink sector, the Scottish Salmon Company was sold to a Faroe Islands fish farming firm in a PS500m-plus deal.

ppps 56 15 2019 2018 28 12 Bakkafrost agreed to acquire Northern Link's 68.6 per cent stake of shares in the salmon producer, triggering a mandatory takeover of the entire business.

0 J F M A M J J A S 9 of Deals Number 6 Elsewhere, Irvine-based wind turbine installation business Windhoist was sold by its Irish owner to European fund manager Star Capital for an undisclosed sum.

3 0 Sco Non Sco O/seas Total Several Scottish firms hit the acquisition trail overseas, including Menzies Aviation, which bought Canadian logistics services provider GTO Global Logistics and opened a new office in the country.

Aberdeen-based energy consultancy Xodus Group also acquired Perth-based Green Light Environmental as part of its plans to expand its Asia Pacific operations.

all deals Among the domestic deals, Edinburghbased fintech firm FNZ acquired Londonbased JHC, which supplies platform software to wealth managers.

140 Average: 67 Total: 606 Average: 77 Total: 695 2019 2018 112 84 56 Private equity firm Cairngorm Capital Partners acquired Millbrook Healthcare in a deal via the Edinburgh and Londonbased-firm's Cairngorm Capital LP II Fund. Cairngorm also acquired builders' merchants Fairalls, which will join Parkers Building Supplies and Stamco to create the largest independent builders' merchant group in the south-east of England.

28 0 J F M A M J J A S All-Scottish M&A deals during the quarter included Aberdeen-based Ashtead Technology acquiring Underwater Cutting Solutions for an undisclosed sum. It was the fifth deal completed by Ashtead since it was acquired by Buckthorn Partners and APICORP in April 2016.

A merger between Glasgow-based www.insider.co.uk printers Bell & Bain and J Thomson Colour Printers created a significant new PS30m annual turnover business in a deal which saw all 300 jobs protected.

Aberdeen Laundry Services expanded its operations with the acquisition of East Kilbride-based Cathkin Clean Scotland in a deal supported by a PS275,000 funding package from Royal Bank of Scotland.

Although the number of management buyouts reported during the quarter continued to be relatively flat, Aberdeen's historic Stoneywood paper mill and hundreds of jobs were saved when managing director Jonathan Mitchell led an eight-strong MBO team which bought the site after operator Arjowiggins Creative went into administration in January.

Employee buyouts included East Kilbride civil and structural engineering consultancy Grossart Associates and Stornoway-based production company MacTV, one of the biggest producers of programming for BBC Alba, including the Gaelic language channel's documentary series Trusadh.

Scotland's oldest commercial art gallery, which has been in operation since 1842, also transferred into the hands of its staff. Shareholders at The Scottish Gallery, including director Guy Peploe, agreed to sell to an employee trust.

The technology sector continued to attract significant funding, with a raftof deals struck by some of the most high-profile names in the sector.

Personal finance app developer Money Dashboard raised PS4.6m from 3,300 crowdfunding investors in the biggest fintech raises on the Crowdcube platform this year. The company reached its initial target of PS1.5m in less than 45 minutes.

Money Dashboard, also supported by investors Scottish Investment Bank and Calculus Capital, is planning to triple its staffon the back of the fundraiser.

Another fintech business, Tumelo, raised PS1m in seed funding from backers including singer-songwriter Peter Gabriel to develop a platform to show investors which companies they own through personal investments and pension funds.

Addleshaw Goddard's Scotland-based fintech team advised on the deal for Tumelo, which was founded by Edinburgh entrepreneur Georgia Stewart.

Neatebox, which has developed an app that gives businesses and venues notice of customers' disability requirements, raised more than PS180,000 from business angel syndicate Equity Gap, Scottish Enterprise and several private investors in a deal advised by Harper Macleod.

MarktoMarket, which provides corporate financiers with data on private company valuations, secured PS1.75m in equity finance from a consortium of investors comprised of 24Haymarket, Techstart Ventures and Par Equity.

Cahal Dowds of 24Haymarket, former vice chairman of Deloitte UK, head of Deloitte's private markets business and chairman of its advisory corporate finance business, joined the board as a non-executive director.

Deals in the life sciences sector included Bellshill-based MGB Biopharma, which is developing products to deal with antibiotic resistance. It completed an oversubscribed fundraiser led by Archangel Investors and including the Scottish Investment Bank, Barwell and TriCapital Investors.

The Scottish Investment Bank also backed ProFactor Pharma of Roslin, Midlothian, in a PS2m funding round led by Kelvin Capital and supported by Ingenza.

Babycare products firm Cheeky Chompers raised PS472,000 to scale the business in an oversubscribed Crowdcube funding round.

Among the refinancing deals, Crawford Scientific completed a refinancing of its banking facilities with Clydesdale Bank.

The undisclosed sum involved will enable the group, headquartered in Strathaven, Lanarkshire, and backed by private equity firm Limerston Capital, to continue growing both organically and through acquisitions.

Despite the continuing uncertain political backdrop, dealmakers are generally positive about the outlook for 2020.

David Kirchin, head of corporate at Addleshaw Goddard in Scotland, says there are some "clouds of concern" around a possible slowdown the closer the UK gets to leaving the EU and when the true impact becomes clear. "But, at this time, the market is very much open for business."

Cairngorm Capital's McGill says that from a private equity perspective, there remains "substantial liquidity" in both the credit and equity markets.

"However, there appears to be more caution across the market which is dampening volumes," he adds.

Graham Cunning, head of corporate finance with Campbell Dallas, is "very optimistic" about the prospects for a buoyant M&A market in Scotland for 2020.

"Strategic buyers - wherever they're based - remain confident in the medium to long-term prospects for the UK economy and are continuing to make acquisitions.

"There also remains a lot of private equity funding looking for investment opportunities and PE houses, both those based in Scotland and further afield, are actively seeking out and engaging with business owners to help them realise their ambitions and strategies." | Top Performers among Scotland's Investors/Advisors January to September 2019 Note: The advisors column should be read as being the parties to the deal (abbreviated) followed by the advisor who acted for that party. Common abbreviations used are as follows: DI = Deal Initiator; V = Vendor; P = Purchaser; I = Investor; Co = Company. Initials or shortened names are used to define other parties to the deal, the full name being in the column detailing the deal. Please note, transactions previously had to be valued at PS0.5m or more to be included in the tables. We no longer have this criteria; deals with an undisclosed value are now shown as N/D and advisors involved in these deals have a zero value attributed in our analysis.

What is encouraging is that there remains the appetite from international trade acquirers to do deals Neil McGill, Cairngorm Capital (below)Companies and investors based overseas see strong businesses and opportunities in the UK David Kirchin, Addleshaw Goddard (below) 0 3 6 Sco Non Sco O/seas Total Number startups

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Above: MacTV MD Bill Morrison has given the company to its employees. Pictured are Morrison and staff

Above: Babycare products firm Cheeky Chompers raised PS472,000 in an oversubscribed funding round on Crowdcube
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Author:PERRY GOURLEY
Publication:Insider Monthly
Geographic Code:4EUUK
Date:Dec 5, 2019
Words:2371
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