PE and debt firms in Scotland drive pricing higher—and increase deal structure options—as they ‘struggle’ to invest billions

BVWire–UKIssue #5-2
August 20, 2019

M&A valuations
mergers and acquisitions (M&A), private equity

Jon Shelley, a deals partner in the Aberdeen office of PwC, writes optimistically that ‘indications suggest political, economic, and regulatory uncertainty will continue over the next year, though this is not expected to further dent the market given the availability of capital and pressure to make a return in spite of the scale and pace of change.’

Shelley adds: ‘Given the pressure for corporates to deliver growth together with the wall of capital that is out there looking for a return, we don’t think waiting is a viable option for many. So, despite the continued uncertainty we do expect transaction activity and pricing to be resilient at around the current levels, representing a really healthy and vibrant deals market involving Scotland’s businesses for the coming year.’

As elsewhere around the globe, Scotland’s private capital community has an increasing amount of capital, which is making the market hugely competitive and a genuine struggle to invest billions of pounds.

‘Funds are trying to win the favour of good businesses seeking investment by differentiating—meaning it is not accurate to cluster “private equity” together under one banner. From buyout funds to growth capital, hybrid capital, flexible capital, family or partnership funds, there are more than a dozen different investment propositions out there,’ Shelley says. The result is good for owners, who are likely to see more potential buyers or funders going forward.

Among other deal trends emerging over the past year, PwC has noted an increase in warranty and indemnity insurance and in the ‘locked box’ completion mechanism—whereby the purchase price is agreed and fixed at the date of signature of the transaction agreements based on a historical point in time.

Shelley adds: ‘Both these trends provide additional certainty for buyer and seller, and we aren’t surprised to see an increase given the uncertainty in the marketplace. It’s great to see innovation continue in our sector and we are now in fact seeing both these elements featured in more than half of mid-market deals.’

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