A couple of years ago, as we emerged from lockdown, I was on a panel of mergers and acquisitions (M&A) specialists at a virtual business breakfast organised by The Press And Journal.
Asked during the record-breaking event how the north-east M&A landscape looked going forward, I responded positively and was proved right.
Aberdeen has generally shown itself to be resilient and, in large part due to its status as a global energy hub, the city has weathered the storm and even thrived in tough times.
How is the future landscape now?
As we emerge from the pandemic, we now face a new set of challenges to businesses – namely rising costs, material shortages, higher borrowing costs, war and, for the energy sector, increased taxes.
Of course, the rising cost of energy has proved to be a double-edged sword.
While business costs have increased, eroding profits, the expectation in the north-east was this could lead to increased investment by energy operators and a trickle-down effect for the supply chain.
It was also expected to provide an indirect benefit to businesses not directly involved in the energy sector, for example, retailers, housebuilders and financial service organisations.
This all set the scene for a thriving M&A market.
But then the government announced it would be applying an increased windfall tax on operators’ profits.
So, there’s a lot going for the local business sector – but plenty of challenges, too.
Busy year for north-east M&A
How then did all of this play out in terms of the effect on the M&A market in the north-east and what is the outlook this year?
In our experience, there was little to no slowdown in M&A activity in the region last year.
We were instructed in relation to transactions where the aggregate deal value was more than £1 billion.
One of our particular highlights was acting for Russell Gibson Financial Management in the sale of the company to One Four Nine Wealth.
It grew the latter’s footprint north of the border and boosted its assets under management to in excess of £800 million.
New year off to a promising start
This year has started positively too. We recently advised a large service company in the oil and gas sector on an international restructure, with a value of more than $140 million (£116 million).
We also advised STC Insiso on the £2 million equity investment in the company by BGF, which will allow it to expand its ever-growing suite of software products and solutions.
Aberdeen software firm @stcinsiso plans to expand following £2.2 million investment from @BGFinvestments 👏
This will accelerate the roll-out of its incident prevention platform, which aims to improve business processes and performance 📈#BusinessGrowthhttps://t.co/4UukFblPad
— Scottish Enterprise (@scotent) February 6, 2023
Speaking about the deal, STC Insiso chief executive Mark Rushton said: “This investment marks the next chapter in our exciting journey.
“Our legal support from Rod and the team at MacRoberts was invaluable, and we’re looking forward to accelerating the development of the products and services that we know will make a big difference to our valued clients around the world.”
Looking ahead, the market shows no signs of slowing down, and we are continuing to advise businesses across the north-east on a wide range of M&A transactions.
Many of these deals are traditional sales to other businesses. Some are two-stage, where firms are looking to secure cash by way of private equity (EP) investment, with a view to growing their company through strategic acquisitions and selling the enlarged business.
The key for us is to work with clients as early as possible in the M&A process.
Do your homework
Firms should be aware of who is buying in the sector, who might buy or invest in their business and what price they are paying, while also considering their exit strategies.
The buyside is the flip of that. Larger corporates and PE-backed small and medium-sized enterprises (SMEs) will usually have well-thought-out acquisition strategies.
There is no reason why smaller or mid-sized SMEs in the energy sector should not also be considering bolt-on acquisitions, joint ventures or mergers as part of their exit plans.
Clients should be aware of who is buying in the sector, who might buy or invest in their business, what price they are paying and how the client needs to plan for their own exit.”
We are increasingly finding that clients really benefit from that forward-looking approach.
An alternative model is also gaining traction. Not exactly new to the market but until recently not as popular a choice for north-east firms, we are seeing more owners looking to exit through selling their businesses to employee ownership trusts (EOTs).
These are established for the benefit of all of the employees of the company.
Employee ownership benefits
While this type of arrangement isn’t suitable for all businesses, it can provide a tax-advantageous route to disposal without going to the marketplace to secure a buyer, and potentially creates a wider marketplace for the sale of the business.
Carole Leslie, director of consultancy Ownership Associates, said: “Employee ownership is growing rapidly across the country.
This is excellent = #Dyce based @Woollard_Henry tell their #employeeownership story in the @cdscotland podcast https://t.co/dqd5wNBAbY pic.twitter.com/F1WOH6to9a
— Ownership Associates (@oauk) July 1, 2022
“Aberdeen and the north-east are a particular hotspot for business owners opting to sell their business to an employee ownership trust.
“By taking this route, the business owner is able to plan their exit at their own pace, while rewarding loyal staff by securing the company locally and providing valuable employment for many years to come.
“That the sale to an EOT is exempt from capital gains tax is an additional bonus for shareholders.”
Rod Hutchison is a legal director in the corporate finance team at law firm MacRoberts.
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