An overview of the Scottish Deals market

The Scottish deals market remains healthy with positive deal activity being reported in most industry sectors underpinned by stable market conditions in spite of the wider political uncertainty over Brexit. We continue to see good deal opportunities across the whole country with particularly healthy levels of activity in the technology, food & drink, construction, support services and leisure & retail sectors. Our deal flow across Scotland remains very strong having completed over 25 transactions in the first half of 2018.

Notable transactions that have completed in the past 12 months include the management buyout of metal recycling specialists John Lawrie Group supported by Rubicon Partners and Grovepoint, the disposal of leading closed panel systems and timber kit specialist Scotframe Timber Engineering to French based Saint Gobain, the sale of travel agent Barrhead Travel to US based Travel Leaders Group, the acquisition of Specialist Independent Rail Contractors QTS by Renew Holdings  and the disposal of trenching specialists Ecosse Subsea to Oceaneering.

On review of the transactions to have completed in the last 12 months, together with our awareness of current market activity, it is important to note that despite the ongoing Brexit negotiations a significant number of active overseas players remain extremely keen to take advantage of potential Scottish investment opportunities, particularly targeting companies who provide niche service offerings which provide the opportunity to enhance their market share, expand their existing portfolio of services or increase their existing capabilities.

In terms of sectors to watch out for, we anticipate an uplift in deal activity again in the Oil & Gas industry.  Indeed, given the market stability and renewed optimism in this space we anticipate greater M&A activity to be undertaken and transactions to be concluded in this space. We note with interest that buyers and sellers are assessing the underlying market conditions and the gap between the counterparts’ expectations is narrowing in the current climate. Whilst we don’t expect a flood of Oil & Gas transactions to close in 2018 there is a healthy appetite from buyers and sellers alike to make deals happen where the dynamics can be made to work for all parties involved.

Looking ahead to the remainder of the year, we continue to see great opportunities in the Scottish deals market across a broad range of industry sectors and as a result our deals pipeline remains healthy as we continue to invest significant time and resources with a number of trade players and private equity houses with a view to initiating strategically compelling transactions.

Comment on the Food & Drink Sector

In recent years, the importance of the food and drink industry to the Scottish economy has been well documented.  This is consistent with the continued spotlight on the sector within the Scottish deal doing community. In the last year, food and drink transactions have continued a pace, for example Beverage Brands’ acquisition of the majority shareholding in Super Nova; the acquisition of a majority stake in Nolan Seafoods by International Fish Canners; and Pelagia’s acquisition of Shetland Fish Products. Business Growth Fund’s investment in Entier, a leading catering services company, also shows the attraction of food and drink related businesses.

We have also seen an increasing desire for operators in the sector to build critical mass quickly via external capital, with equity fundraising being particularly common in craft brewing and distilling (whisky and gin).  These transactions are common in start-ups as well as maturing businesses looking to accelerate growth.   There are several distilleries and breweries looking for funding at the moment and we would expect to see fundraising activity in the drinks market continue in the next 12 months.

Our experience is that the food and drink sector continues to be one which attracts buyers, and at AAB we have a number of acquirers actively looking for targets in manufacturing, wholesale and food service.  Niche businesses are likely to attract a premium, as are ‘free from’ products, high end luxury food and drink, and businesses with strong brand recognition.

Only time will tell what Brexit will do to the price of exports and the industry’s regulatory environment, but for now there are no shortage of parties looking to do a deal.

For more information please contact Douglas Martin, Lyn Calder, or your usual AAB contact.