Scots corporate finance deal valuations rise – PwC

The average valuation of corporate finance deals in Scotland is on the rise, according to PwC, in spite of economic uncertainty which is expected to continue for the foreseeable future.

PwC said there is an increasing amount of capital in the hands of private equity houses and debt funds “which is making the market hugely competitive and a genuine struggle to invest billions of pounds.”

PwC said: “This is leading many funds to innovate and introduce tailored propositions.”

Jon Shelley, PwC’s head of corporate finance in Scotland, said that although the overall number of deals being completed has fallen in the last year, the average valuation of these deals is on the up.

“What we are seeing is that average pricing on completed deals is slowly increasing and that at the moment it’s typically the larger perhaps more diversified, international and more differentiated businesses that are sought after and selling at increasingly strong prices,” said Shelley.

PwC said that while the overall number of deals completed in the year to 2018 was down about 25%, “a high bar had been set in 2017.”

Competition and the requirement to invest is helping to drive prices up, PwC said.

The biggest deals of the last 12 months have included the sale of Edinburgh-based wealth management fintech firm FNZ to Canadian based investment group CDPQ for roughly £1.65 billion, the roughly £275 million sale of Weir Group’s Flow Control Division to US based First Reserve, and more recently the sale of Howden to KPS Capital Partners.

Shelley added: “Given the pressure for corporates to deliver growth together with the wall of capital that is out there looking for a return, we don’t think waiting is a viable option for many.

“So, despite the continued uncertainty we do expect transaction activity and pricing to be resilient at around the current levels, representing a really healthy and vibrant deals market involving Scotland’s businesses for the coming year …

“Funds are trying to win the favour of good businesses seeking investment by differentiating – meaning it is not accurate to cluster ‘private equity’ together under one banner.

“From buyout funds to growth capital, hybrid capital, flexible capital, family or partnership funds, there are more than a dozen different investment propositions out there.

“This is really good news for the business owner who can much more readily find a deal structure, cultural proposition and meeting of minds for their objectives.”