After navigating their way through the pandemic and enjoying a strong 2021, the start of 2022 has brought a new wave of uncertainties for Scotland’s dealmakers.
According to Graeme Bruce, corporate partner at law firm CMS, there was a “noticeable, but short-lived” pause in deals activity after the Ukraine invasion as buyers and sellers took stock.
He says this was mostly down to a reassessment of pricing, given concerns about the likely impact of increasing costs; in particular escalating oil and gas prices.
Although dealmaking has now resumed in earnest, concerns over costs are seeing changes to agreements.
“Buyers and sellers are seeking to minimise price uncertainty and risk within deal structures in light of rising inflation,” says Bruce.
“Buyers are typically requesting deferred consideration or various types of earn-out clauses within M&A agreements along with more novel price adjustment mechanisms to safeguard them from any potential fall in asset valuation.
“Meanwhile sellers are looking, where possible, to avoid such risks by securing greater certainty on price through locked box mechanisms.”
Top performers among Scotland's investors and advisors, from January to December 2021
Lawyers
Accountants
Investors
In terms of deals activity, the opening months of 2022 have been dominated by a raft of overseas acquisitions of Scottish technology firms, along with announcements of more raids on the nation’s listed companies, with bids for both Stagecoach and Menzies.
Although the latter are like to see the number of Scottish listed companies continue to shrink in the months ahead, Motherwell-headquartered cell therapy firm TC Biopharm bucked the trend with a successful IPO in the US.
The listing saw Investing Women Angels (IWA) become the first Scottish angel group to achieve a Nasdaq exit.
David Kirchin, partner and head of Addleshaw Goddard’s corporate team in Scotland - which provided legal advice to the company - believes the US listing could be prove to a catalyst for other firms.
“This was the first Scottish Nasdaq IPO for a number of years and demonstrated Nasdaq’s appetite for life sciences businesses - it could set a precedent for other Scottish companies in the sector,” he says.
Big-ticket foreign acquisitions of Scottish technology firms included the sale of TVSquared for around £120m, in a deal that saw bumper windfalls for high-profile investors, including Sir Tom Hunter.
The business, founded by entrepreneur Calum Smeaton in 2012, was acquired by advertising platform firm Innovid.
In another major deal, Glasgow-based data analytics specialist Incremental Group was bought by Spain’s Telefónica Tech for up to £175m, in a deal where advisors included BDO.
Candidate.ID, the Glasgow-based recruitment technology specialist, was also acquired by New Jersey company iCIMS.
Scotland’s burgeoning education technology sector saw a flurry of transactions, including the purchase of Edinburgh-based digital learning platform developer Sumdog by Scandinavian buyer Albert.
The deal was one of two in the sector completed by Grant Thornton within days, after Giglets Education was acquired by Swedish private equity-backed ILT Education.
Neil McInnes, head of corporate finance for Grant Thornton in Scotland, says he expects more transactions in the sector.
“The pandemic has highlighted the importance of technology across all sectors, including education, where every school was forced to pivot to home learning during the lockdowns - we have seen significant interest from investors in this space and a strong pipeline of deals.”
In fintech, Scottish financial planning platform Nucleus was sold again, just months after it was acquired by James Hay. HPS Investment Partners bought a majority stake in the firm for an undisclosed sum.
Elsewhere, Swedish firm Röko took a majority stake in Dumfriesshire-based IT refurbishment firm ETB Technologies, while travel technology company Criton - founded by Julie Grieve in Edinburgh in 2016 - was also acquired by global hospitality business Nonius.
The quarter also saw a Scottish tech firm make an overseas acquisition, with Fife-based Cooper Software purchasing German-based ERP consulting firm U:Benit.
In the energy sector, major deals announced included the sale of Aberdeen-based Sparrows Group to French offshore energy company Altrad.
Sparrows, which provides engineering, inspection, operations and maintenance services, will be run autonomously by its existing management after the deal completes later this year.
Partners Group, a leading global private markets firm, also struck a deal to acquire shipping group North Star from Basalt Infrastructure Partners.
Elsewhere in the sector, Forth Ports acquired Dundee-based OM Heavy Lift which it has worked with number of large-scale projects in the renewables and decommissioning sectors.
US-based Baird Capital also backed Aberdeen-based Subsea Technology & Rentals (STR), in a deal advised on by AAB. Funding will help the company’s expansion into Americas, mainland Europe and Southeast Asia.
Other all-Scottish deals saw Edinburgh based consumer brand investor Inverleith take a majority stake in Eden Mill, the St Andrews based premium gin and whisky distiller, in a deal advised on by Burges Salmon’s corporate finance team.
Fire engineering consultancy S. Brooker & Associates was sold to chartered building surveyors Diamond & Company, in a deal advised on by Macdonald Henderson. The new business will be known as Brooker Diamond Fire Engineering and will be based in Cumbernauld.
UK deals included Bracknell-based Cawood acquiring the microbiology and food chemistry testing laboratory Express Micro Science of Linlithgow, in a deal where advisers included Addleshaw Goddard.
In food and drink, gluten-free manufacturer Dr. Schär UK also acquired Glasgow based allergen-free bread manufacturer GDR Food Technology, in a deal advised on by Dow Schofield Watts and Hill Dickinson.
The start of 2022 saw another raft of employee buyouts completed, including at Glasgow-based musical instrument retailer guitarguitar, after founders Kip McBay and Graham Bell decided to hand over the reins of the £45m turnover business to staff. EY, Lindsays and Ownership Associates provided advice.
Linlithgow-based investment advisory firm Alan Steel Asset Management (ASAM) also adopted employee ownership following the wishes of its late founder, Alan Steel.
Major funding deals included global advertising tech company Good-Loop closing a Series A round of £4.5m to fund product development and global expansion for the Edinburgh firm. The round was led by New York-based investment fund Quaestus Capital Management, Scottish Enterprise, SIS Ventures, First Party Capital and Seedrs.
In the life sciences sector, St Andrews-based drug developer Pneumagen raised £3.8m in a round co-led by existing investors Thairm Bio and Scottish Enterprise.
RoslinCT, a leader in advanced cell therapies contract development and manufacturing, attracted investment from Global Healthcare Opportunities Capital Partners, advised on by Dentons.
Fife-based retinal imaging company Epipole also secured £1.3m in new investment in a round led by Greenwood Way Capital and supported by Scottish Enterprise, and Glasgow’s Talking Medicines closed a £1.5m funding round to support its expansion into the US.
Looking ahead, Donnie Munro, head of the corporate team at Harper Macleod, says although the risk of increases in capital gains tax has driven much deal activity in the past, other pressures are now more prevalent.
“Today we are seeing pent-up demand and funds to be deployed, whether that be from venture capital, private equity, traditional debt funders, or large corporates - all are managing reserves and assessing where opportunities lie.”
Munro sees high levels of activity ahead in several of Scotland’s key sectors.
“Healthcare is attractive for investors, particularly where we see consolidation in the market.
“The same can be said for traditional financial services businesses and investment in new technology platforms,” he continued, adding: “Scotland’s burgeoning space sector will continue to grow, underpinned by R&D clusters, geographical advantage, and investor interest.”
Although the global backdrop remains very challenging, Addleshaw Goddard’s Kirchin believes such uncertainty can also be a driver of deal activity.
“While parties are giving close consideration to the wider issues affecting the economy, ultimately we are seeing them take the decision to press on with their deals.”
Don't miss the latest headlines with our twice-daily newsletter - sign up here for free.
