Prior to global lockdown restrictions in 2020 – though it is sometimes difficult to recall those days – deal flow was relatively strong.
Momentum in the second half of 2019 translated into the successful completion of a number of high-profile transactions in Q1 of last year.
Deals completed included the acquisition of Rowan Manufacturing and Smith & Frater from Rowan Group by leading timber specialist James Donaldson Group, and Hunting Plc’s acquisition of subsea production enhancing specialist Enpro Subsea for £28 million.
Mergers and acquisitions (M&A) activity faltered from March to June 2020, with the economic standstill leading to caution and a number of proposed deals delayed, postponed or cancelled.
Business owners and investors turned their attention to resilience, cashflow management and adapting to rapidly changing market conditions.
Encouragingly, there were promising signs of confidence and positive momentum returning on the back of market stability – which resulted in M&A deal flow increasing, with some businesses committing from crisis management to a planning ahead mindset.
There are still challenges, with capital investment under intense scrutiny, though our experience is that acquirers have a renewed focus on the longer-term strategic value that a target would bring, with many looking to pursue off-market deals.
M&A opportunities have presented chance for businesses looking to get their medium to longer-term objectives back on track.
A notable example of this is Inverness headquartered Global Highland’s acquisition of Aberdeen recruitment agency Cammach Bryant.
For some firms, opportunistic M&A is seen as softening the blow to their own financial performance.
For others it is a viable option for improving business reliance to the market conditions – such as in the merger of Fircroft and NES Global Talent to create NES Fircroft, which was announced in September 2020, and the recent acquisition of Aberdeen-based Rever Offshore’s subsea services business by Dutch dredging and heavy lift vessel firm Boskalis.
An important factor in the positive shift in momentum of deal activity has been the anticipated changes in capital gains tax (CGT).
When it was announced on September 23 2020 there would be no Autumn Statement and consequently, no changes to CGT or any other tax rates until spring 2021, many vendors sought to accelerate their plans to take advantage of this new window of opportunity.
We will find out on March 3 what changes will be made as the chancellor seeks to recoup the cost of bailing out businesses and jobs.
A focus on accelerating all things digital has underpinned an increase in the level of M&A and fundraising activity in the technology space.
There has also been a succession of announcements regarding investment in low-carbon energy projects – including from SSE, which in June disposed of a 51% stake in the £3 billion Seagreen offshore wind farm to Total, then in September sold a 49% interest in the Walney development, off the coast of Cumbria, to Greencoat Capital for £350m.
We are optimistic that transaction activity levels will continue to improve throughout 2021, with the current, busy pipeline being replenished by new opportunities as the rollout of Covid-19 vaccines brings stability.
We are already seeing greater activity from private equity and growth funds, with many having dry powder to deploy after sitting on funds in 2020.
In addition, we anticipate more off market transactions as businesses proactively pursue growth and opportunistic deals.
Find out more at Anderson Anderson & Brown.