Merger and acquisition activity in Scotland is expected to slow in 2021 as uncertainty about the outlook for the economy weighs on sentiment in the midst of the coronavirus crisis and Brexit, said one of the best-known corporate financiers in the region.
David Leslie, however, said that in recent years, Scottish firms have demonstrated their resilience and expected deals will continue to occur, with potential investors focused on sectors such as pharmaceuticals, technology and financial services.
“Overall, merger and acquisition activity will be lower than in recent years, but there will still be a flow driven by potential upcoming tax changes, some key sectors still consolidating and restructuring deals,” said Mr. Leslie.
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He expected that buying interest will come from businesses in Scotland and foreign-based businesses. In other nations, Scottish businesses could make acquisitions.
Some businesses may be motivated by the expectation that, given the challenging circumstances facing the companies, there are bargains to go on an acquisition spree.
This may trigger a restructuring of certain businesses, causing them to sell non-core assets. Companies may purchase or combine with rivals to increase scale in sectors that remain fragmented.
“There will be opportunistic investors and companies that see good opportunities that they think they can get at a reasonable price,” said Mr. Leslie, who, after heading the deal-making team at accounting giant PwC in Scotland, formed his own corporate finance company.
As the government tries to relieve pressure on the public purse, concerns that capital gains tax reforms are on the horizon may induce business owners to sell.
Mr. Leslie said, “There are quite a few businesses that have been in the family for 10 or 20 years that are thinking about succession planning,”
Sellers will face intense interest from private equity houses sitting on enormous sums of capital that investors have earned and need to put to work, he said.
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The disparity between the asking prices of business owners and bidders, however, may pose major challenges for deal-makers.
Mr. Leslie noted, “Some growth sectors will continue to have high multiples, but for most sectors, I would advise if you don’t have to sell [in 2021], don’t sell. If you feel you have a medium-term strategy for the business, this is the time to really focus on the business and its potential.”
He added, “Right now, many of the companies I work with at Leslie Corporate Finance are focused on core expansion, building a strong business, and the right deal will come along when the market fully recovers.”
Mr. Leslie does not think transactions should be motivated by tax considerations.
He expects that this year’s new Scottish National Investment Bank would help boost activity.
Chaired by Willie Watt, a veteran of private equity, the bank aims to concentrate on supporting investment in infrastructure, the environment and fast-growing businesses. In order to create a better, fairer and more prosperous Scotland, the bank has said it will provide patient, long-term resources.
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It recently closed its first contract, with an investment of £ 12.5 million in M Squared Lasers, based in Glasgow.
Support from investment banks might help businesses attract other investors.
The fact that there are a number of wealthy business angels in Scotland willing to fund businesses, even relatively young companies, may also help companies with strong growth potential.
“Early-stage fundraising is quite active,” Leslie said, adding, “Basically, if you have a good business, you’ll raise the capital.”
He noted that global activity in M&A was stimulated by the fact that