KPMG: Mid-market private equity investment ‘resilient’ in 2019 despite political uncertainty

Mid-market private equity investment in Scotland remained resilient throughout 2019 despite ongoing political and economic uncertainty, according to new research from KPMG.

KPMG: Mid-market private equity investment 'resilient' in 2019 despite political uncertainty

Pictured: James Kergon

A total of 32 Scottish deals were completed over the course of 2019, down from 34 in 2018. While only representing six per cent of UK mid-market deal volume, the combined value of the deals was more than £2.77 billion, £790 million higher than the previous year.

Across the UK, the middle market saw a drop in deal volumes, recording 532 deals in 2019 compared to 623 in 2018, but the combined value of these deals hit £39.9 billion – representing a five year high.

James Kergon, KPMG’s head of deal advisory in Scotland, said: “Persistent geopolitical and economic uncertainty dampened enthusiasm in the wider UK M&A market, particularly during 2019. With that in mind, it’s reassuring to see relative resilience in the mid-market environment, both here in Scotland, and elsewhere in the UK.

“While Scottish deal volumes were down modestly, values are up substantially due, at least in part, to a wide range of available debt options and an abundance of investment capital. Investors also appear to be directing more money towards fewer, larger companies, narrowing the spread of their investments.

“One of the main drawbacks right now for dealmakers is a lack of availability of growth-hungry, resilient businesses that provide enough opportunity to add value, and we believe that could be another underlying reason behind deal size increasing so substantially.”

While the market ended 2019 in a somewhat stronger, more positive position, there remains a degree of caution that ongoing wider uncertainty could impact levels of PE-related activity.

Jonathan Boyers, head of KPMG’s UK M&A practice, said: “After a long period clouded by so much uncertainty, the December general election at least provided the market with a degree of clarity, and the early signs are there that this may stimulate a resurgence of PE-related activity across the UK - at least in the short to medium term.

“Companies of all sizes are starting to feel more emboldened to proceed with plans they have had on ice for the past several years. And PE funds remain eager to deploy their ample dry powder. Long-term stalwarts of the UK mid-market PE community may move up in terms of their deal size focus as they’ve raised ever larger sums, but the mid-market will remain well-served. Larger players are establishing enterprise funds; family offices are recruiting former PE fund managers to launch their own similar investment vehicles; and new players from the UK and elsewhere are rushing in to fill the gap as well.

“Well-run, resilient UK mid-market companies with significant potential for growth should have little trouble finding the capital they need to achieve their ambitions. Despite a burst of new year optimism, there is nevertheless a recognition that trading conditions remain fragile, and although Brexit is now a certainty, there remains doubt around our future trading relationships once the transition period expires at the end of the year. This means we are potentially looking at a narrow window in which to transact – so expect to see more deals happen in the first part of the year, than in the latter months of 2020.”

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