A trend which started many years ago appears to be picking up pace again.
Businesses built in Scotland are increasingly being acquired by overseas rivals or global finance firms.
The question is, given the flexibility of work and globalisation of groups, beyond some diminishing sense of patriotic prestige, does it really matter?
Headquarters may move elsewhere, but Scottish workforces are usually maintained, with many foreign firms citing the nation's steady stream of skilled graduates and existing ecosystem within certain sectors as the reason for doing deals in the first place.
These big transactions, which often take many months to smooth out, are a boon for local lawyers, advisers and accountants - but once the ink has dried, these same firms may lose out on more regular business, as acquirers favour existing relationships elsewhere.
In the last couple of years, there has been a spate of large Scottish-headquartered companies being bought out, including:
- Edinburgh-headquartered Miller Homes being bought up by American firm Apollo Funds in December 2021 for an undisclosed sum. The same asset manager has made a bid to buy Wood Group, which the board appear to be warming to.
- In August 2021, Glasgow-headquartered Aggreko was delisted from the London Stock Exchange following its £2.3bn acquisition by private equity firms TDR Capital and Miami-based I Squared Capital.
- I Squared Capital also made a bid for FirstGroup, although it ultimately pulled out of plans to buy the Aberdeen-based transport company.
- Sticking with transport, Stagecoach rejected a bid from English rival National Express and went with a £595m takeover by German investor DWS Infrastructure - with the board noting that the deal offered greater certainty around headcount and the retention of existing headquarters in Perth.
- In August last year, Kuwaiti logistics group Agility finalised its £763m acquisition of Edinburgh-based John Menzies and combined the business with its National Aviation Services division.
- In November 2022, Edinburgh-headquartered energy consultancy firm Wood Mackenzie was sold to New York-based private equity firm Veritas Capital for $3.1bn - although it had already been owned by New Jersey-based Verisk since 2015.
- Another Edinburgh-headquartered company, Capricorn Energy, was due to merge with an Israeli rival, but a shareholder revolt cancelled those plans, replaced the boss and most of the board, and implemented a strategic review which recently reported a refocusing away from the North Sea and toward Egypt - resulting in a significant reduction in UK workforce.
This is nothing new of course, as while Edinburgh and Glasgow are home to some significant Scottish operations, ownership and much of the real power now lies down south or overseas.
The Royal Bank of Scotland became NatWest Group, with chief executive Alison Rose based in London, while the Bank of Scotland’s parent Lloyds Banking Group also holds court in the English capital. Much the same can be said for the likes of TSB and Scottish Widows.
In other industries too, ScottishPower was taken over by Spanish giant Iberdrola, Scottish and Newcastle was carved up by rival brewers, much of Scotland’s salmon farming industry is owned by those across the North sea and many of the nation’s whisky distilleries are now ultimately owned by global groups.
The recent rise in deals is being fuelled by macroeconomic shifts, with buyers increasingly confident that interest rates are close to their peak - a key consideration, given the amount of debt that private equity firms tend to then load on.
The UK’s stock market, even after a good run, also looks relatively cheap by international standards.
Neil McInnes, a Scottish partner at accountancy firm Grant Thornton, pointed out that there isn't anything uniquely Scottish about the acquisition trend.
"If you look across any market in the UK and the US, the number of takeovers of private companies has gone up," he explained, stating that this was down to a combination of factors.
"Firstly, it's been a hot market over the past couple of years, so we'd expect all types of deals to increase, particularly those driven by private capital - as private equity have had access to a lot of capital and most importantly, access to a lot of cheap debt - so that's how they've been able to fund these types of deals.
"Then, you throw into the mix the equities market trading lower than pre-Covid levels, so arguably listed companies have been undervalued.
"That's what's been driving the trend, but it's not unique to Scotland; we might be a bit more sensitive to these trends as we don't have as many listed companies here in Scotland so they seem more noticeable."
McInnes added: "As long as the country is bringing new companies onto the market as well, then the listed eco-system is maintained – and we have seen a cluster of new companies listing in recent years."
Then there’s the matter of Scotland’s falling participation in the listed markets, as many private equity buyers prefer to remove their new assets from such regular scrutiny.
There were more than 2,000 companies on the UK’s main market in 2003. A decade later and the number is almost half that.
Murdo Montgomery, director at corporate advisory firm Bamburgh Capital, said: "A vibrant listed company ecosystem is critical for the effective functioning of a developed economy, providing the capital for companies to grow and create jobs and to invest in society’s infrastructure."
He pointed to what SSE has achieved as a listed company and the billions it has invested in building out the UK’s renewable energy infrastructure – something facilitated by the access to capital it has had over the last 20 years.
"When businesses are acquired by overseas buyers, the centre of gravity of controlling investment decisions shifts with it, risking economic growth for the Scottish economy in the short and longer-term," Montgomery continued.
"We think it matters a great deal, particularly given we are not seeing these companies replaced by a new generation of listed companies - so it’s a compounded economic negative and should be a cause for concern."
As for why the listed universe appears to be shrinking in Scotland, he argued that to some extent the spate of recent de-listings can be seen as cyclical, given the opportunities created for buyers by the market correction in valuations over the last 12 months or so.
"But for Scotland if you look at this over the course of recent economic cycles, it is also clearly structural – the Scottish economy is not building the types of companies that are offering public market investors what they are looking for, which is in turn constraining or risking the creation of high-quality jobs."
Insider recently delved into the pros and cons of scaling Scottish companies listing or staying private, but Montgomery opined that many high-growth or high-quality manufacturing and services businesses are acquired by private equity before they reach a stage of maturity that suits a public listing.
"A lot of private equity houses seem to have a blindspot to listing as an exit option, so once they become the controlling shareholder, the IPO route is effectively closed down as an exit strategy for them."
There have, of course, been a few exceptions to this. Aberdeen-based Ashtead Technologies has seen its share price double in the 18 months since its listing, with its private equity backers seeing a substantial value uplift on residual holdings.
"As an advisory firm, we’re frustrated that not enough companies in Scotland consider an IPO as a viable option and are frustrated that Scottish PLCs can be under-served from an advisory perspective in thinking clearly and independently about how shareholder value can be delivered," concluded Montgomery. "Often it can take time to deliver on this objective, but the rewards of operating as a PLC for companies, employees and the broader Scottish economy are substantial."
Damien Bechelli, head of corporate in Scotland for law firm TLT, said it’s no surprise that Scotland attracts so much overseas investor interest, given the relatively high concentration of universities, skilled labour force, record for innovation and low business rates.
“That Scottish companies are increasingly being recognised as great businesses around the globe - and therefore attracting the attention of international private equity and large multinationals - is a real positive and far outweighs the concerns that some may have about Scottish headquartered companies falling into foreign ownership,“ he stated.
“However, it remains to be seen whether the new National Security and Investment Act 2021, which permits the UK Government to intervene to block transactions involving foreign firms in certain ‘high-risk sectors’, will impact this trend.
“It is unlikely the government will intervene regularly, however some of the supposedly high-risk sectors are those most popular with foreign investors - so time will tell.”
Maggie Chapman, Green Party MSP for North East Scotland, responded to the foreign ownership trend by stating that there may be cases where this the best way to save jobs, but these kinds of deals must always be combined with strict oversight and regulations to avoid the possibility of money laundering, asset stripping or corruption.
"Particularly in an increasingly globalised world, we should be seeking to build a strong economy based on locally-owned and run companies, rather than relying on detached international investors or the kind of multinational corporations which will often do their best to avoid tax and drive down terms and conditions for workers.
"More broadly, we have seen a destructive trend towards vital assets and services being sold to private companies which are only concerned with their bottom line and have little if any interest in the needs of service users or our communities.
"Our key utilities should always remain in public hands rather than being sold off to the highest bidder."
Scottish Conservative shadow cabinet secretary for finance and economy Liz Smith said: “Scotland has done well in recent months when it comes to Foreign Direct Investment returns - and that can only be good for jobs - but the other side of the coin is the concern that too many Scottish owned companies are finding it tough to survive.
“Scotland is the highest taxed part of the UK, our economic growth is sluggish compared with other parts of the UK, and our deficit is higher.
“Inward investment is always welcome, but what Scotland needs most is a government that will listen to businesses and address their priorities.”
Brian Aitken, partner at Scottish investment firm Nevis Capital, questioned why the people in power are getting so stressed about foreign buyers, given how much time and money is put into attracting inward investment.
“In my experience, foreign investors are buying quality businesses and they want to see them grow and develop - Ctrip acquiring Skyscanner being a good example.
“This usually results in investment and new jobs - and is good for our economy - we operate in a global market, so does it really matter who owns the shares if the business is being grown, with jobs created, taxes paid and communities supported?“
Aitken added: “The Scottish Government is keen to promote Scotland as being an inclusive nation and part of a global market, but then has a massive focus on employee ownership to try to keep businesses ‘Scottish owned’ - when often this results in businesses spending years using profits to pay down the proceeds to the vendors, rather than investing for growth - and seems to discourage foreign acquisitions.“
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