Land of opportunity? 4 key trends in the Scottish deals market
Tom Faichnie of Dow Schofield Watts Scotland highlights some current developments and discusses the future prospects for M&A
1. SMEs need to find ways to boost their value
SMEs are the bedrock of the Scottish economy and we have lots of very successful small firms with world-class skills and technology. But no matter how profitable they are, many are simply too small to attract interest from larger trade buyers so undervaluation is a widespread problem, especially when founders are looking to retire.
Attracting buyers is much easier if the company is above a certain size. Mergers and acquisitions are one way to boost value and could certainly be a better strategy than leaving cash in the business, as many owner-managers tend to do.
2. …though funding remains tight
While Scotland has traditionally been strong on finance, there is now a gap in the market for funding for smaller firms, typically with revenues or £3m or below. Many private equity houses have moved up the ‘food chain’ and now seek larger investments, and even angel investors are reluctant to do deals of under £1.5m. There is certainly an opportunity for new funders to enter the market to fill this gap.
3. New opportunities for ‘buy and build’
Scotland also offers huge opportunities for consolidation in sectors such as hospitality and leisure. Many businesses in these sectors are independents and, in the wake of the pandemic, owners are feeling jaded and looking to sell. For entrepreneurs with energy and vision, there is potential to pursue acquisitions; or for investors to pursue buy and build strategies and create a new force with their industry.
4. Global investors warm to Scotland
Despite the challenging economy, there is still plenty of international money chasing returns and willing to invest in Scotland. Having extended our services to include fundraising on the global markets, we have been pleasantly surprised by depth of interest, particularly from funds offering asset-backed finance, whether that is backed by property or infrastructure.
Scotland punches above its weight on the world stage – it is a familiar and well-loved brand. That is great news for our economy, as boosting inward investment could help fund infrastructure improvements and build the industries of the future.