Scots M&A fell 68% to £4.6bn in first half – Experian

Activity in mergers and acquisitions fell sharply in Scotland in the first half of 2023, with 25% fewer deals being announced and the value of deals plummeting 68%, according to Experian Market IQ’s M&A Review.

The first six months of the year recorded 183 deals in Scotland compared to to 247 deals done in the first half of 2022.

The value of mergers and acquisitions in Scotland also tumbled with the £4.6 billion worth of deals announced since January being 68% lower than the £14.4 billionn recorded in the same period in 2022.

“Deals at the lower end of the market proved more resilient than the mid-market and above, with volume and value down by approximately 20% on last year,” said the report.

“Mid-market and large cap deals each saw a 37% fall in volume, whilst mega deals fell by 60%. Valuations at the higher end of the market declined more markedly, with mega deals struggling to reach the £3bn mark in comparison to just over £10bn last year.

“As deals become more difficult to complete in the current environment, the variance between small deals and those in the mid-market and above may become more distinct.

“Domestic transactions again made up the bulk of activity, with outbound investment spread as far as Australia, India and the USA. Overseas acquirors accounted for close to 10% of deals, with Europe and the USA dominating. Scotland’s deal activity represented 6.4% of the UK’s total by volume, and 6.8% by value.

“Scotland has seen two mega deals in the first half of the year, both announced in Q2. The largest of these saw Spanish energy group Repsol buy the 49% held by its Chinese joint venture partner, Sinopec, in Aberdeen-headquartered Repsol Sinopec Resources, for £1.7bn. The deal ends an eight year dispute over the price

“Sinopec’s subsidiary paid for the 49% stake in the business back in 2015. The joint venture is an oil and gas exploration and production enterprise operating in the North Sea.

“The second of the mega deals saw HM Treasury further reduce its stake in banking group NatWest, as it sold £1.26bn of shares back to NatWest via a directed buy-back. This brings NatWest a step closer to full private ownership as the Government’s stake is reduced to 38.6% – down from 84% at its peak.

“Other deals of note included the acquisition by US-based Barnes Group of Motherwell company MB Aerospace for £596m, and the £144m acquisition by NatWest of an 85% stake in pensions fintech Cushon Group.

“Whilst the overall picture of M&A activity in Scotland mirrors the downturn seen across the rest of the UK, and indeed in the global markets, the professional services sector was one of the few sectors to see an upturn in the volume of deals, with the 61 deals in 2023 registering a near 13% rise on the 54 deals recorded last year.

“A flurry of deals by Glasgow-based RSK Environment, part of the RSK Group, contributed largely to the rise in volume as it continued to grow and diversify its business.

“Scottish manufacturing deals were particularly hard hit in terms of volume, with the 41 deals recorded in the first half of 2023 down by 45% on the previous year. However, deal value in this sector was 15% higher than last year, up from £2bn to £2.3bn.

“The interest rate hikes seen in recent months have understandably affected both the demand for acquisition finance due to the higher interest burden, along with the supply as lenders become more risk averse to committing funds.

“This is evident in the 20% downturn in the volume of deals funded by bank borrowing in the first half of the year. ThinCats was the most active lender, having supported on four deals, with HSBC a close second on three.

“Deals funded by private equity or venture capital also fell in volume by just over 25%. Scottish Enterprise, Old College Capital and Business Growth Fund topped the tables. Less affected by the economic headwinds were deals financed from existing cash reserves, with a drop of just under 14% in volume.”