M&A activity in family business sector

As featured in The Scotsman Annual Deals Supplement AAB’s Edinburgh Managing Partner & Head of Deals in the Central Belt, Lyn Calder, reflects on M&A activity in the family business sector.

Early 2020 activity

In early 2020, before any of us had an inkling of what was to come in the COVID-19 world, it was business as usual for family businesses.  Generating almost half of Scotland’s GDP, family businesses were growing both organically and through acquisition, all the while focussing on the family values that remained at their core.   

Indeed, in the first 3 months of this year, we saw several acquisitions by family businesses in Scotland, including Plaspac Scotland’s acquisition of Ferrari Packaging; James Donaldson & Sons’s purchases of Rowan Timber and Smith & Frater; and Global Energy’s acquisition of Magma Products.  The focus was on strategic long term goals, investing for the future, but doing so in a way that protected the family legacy.  

March onwards

Since March the story has clearly been different.  For most, there was a need to batten down the hatches, pull together and focus on what needed to be done.  Many family businesses have had the benefit of having been here before, with older generations being able to share their experiences of previous tough times with younger family members, which was invaluable, and will continue to be so as we navigate the recession.   

The dynamics of family businesses tend to enable agility and fast decision-making, both of which were crucial at the height of the crisis, when the customer base and supply chain were both in need of immediate attention.  As with all businesses, taking care of employees was key to survival. Family businesses tend to have honesty and communication at their core, and this has always created a great deal of staff loyalty, which has never been more important than in COVID times.

Looking to the future

It’s been well documented that we’re not there yet, not even close, but for many companies, it’s time to start to look to the future. Family businesses often take a prudent approach to debt and so the impact on the balance sheet has been less severe. For many this will allow them to look for investment opportunities, and to consider growth capabilities, possibly outside of the core business. Protecting the business for future generations must be about planning for the long term, even in difficult times.  

While deal activity has most definitely been lower in quarter two of 2020, it has been encouraging to see family business transactions complete, for example Garrick’s Group’s acquisition of MRDS and the employee buy out of MHB Consultants.  While nowhere near the level of activity pre lockdown, there is hope across the M&A world that we’ll see these green shoots grow in the second half of the year.   

The importance of family businesses in helping the economy to get back on its feet can’t be underestimated.  At AAB, our many family clients are up for the challenge, and several are on the hunt for new acquisitions. There’s no doubt that there is a cautiousness that wasn’t there before, but for the right opportunity they will make strong strategic decisions. 

Given the market conditions, some of acquisitions will no doubt will be distressed ones, in addition to purchases of profitable entities.  It will be interesting to see in a year’s time how multiples will fair, and I suspect we’ll see prudence in the market.  One thing is for sure, though, that whether it’s by acquisition or organic rejuvenation, family businesses will be a key part in supporting our future economic prosperity.