North-East of Scotland dealmakers have welcomed the announcement of GB Energy being headquartered in Aberdeen, although there remains concern that the transition from oil and gas is being mishandled by policy-makers.
At the Aberdeen Chamber of Commerce autumn dealmakers breakfast, sponsored by CMS Scotland and Alba Partners, a panel of industry insiders were generally positive about the new institution that is expected to play a strategic partnership role in stimulating the transition from hydrocarbon energy sources to offshore renewables and other net-zero forms of energy.
In a keynote address, Professor Mairi Spowage, director of the Fraser of Allander Institute, painted a sombre view of the UK and Scottish economies, pointing out that economic activity in the energy capital of Europe had been dented and the wider business investment environment remains very difficult.
“Aberdeen was consistently in the top ten of areas, even in the top five. It generates lots of economic activity per person. GDP per head in Aberdeenshire is 20 per cent higher than the rest of Scotland average, but it used to be 50 per cent ten years ago,” she said.
Craig Wilson, a corporate energy partner with CMS in Aberdeen, said: “While uncertainty is never good for business, we are all looking forward to seeing the details of the UK Budget on 30 October, particularly around the investment promises. I think cutting investment allowances and increasing windfall tax is not good for the North-East.”
Martin Suttie, managing director of First Integrated Solutions, has been involved in a series of strategic acquisitions, and now employs approximately 300 people in his four oil-field services companies, including working on offshore wind projects.
“Uncertainty is the big barrier to any deal. There is huge uncertainty over windfall tax, we’ve had high inflation and there is uncertainty over the funding for floating wind projects, where we are investing heavily.
“As a buyer, this uncertainty is difficult because you are buying as multiples [of annualised revenue] and you’re looking for a return on your capital in four to six years. Who wants to wait six years for their money when they don’t know what’s happening in the market?”
Suttie said deals were failing because of poor-quality management information from the vendor, and often fixed asset registers did not tally up or had not been kept up-to-date. “If I don’t know your profit number, how can I buy your business?”
He said there were simple things that businesses could do to get themselves ready for sale, including ensuring disparate groups of shareholders came together in agreement with a single voice.
He pointed out the oil price was the same as when he joined the industry 18 years ago yet the levels of taxation are the highest.
“How can that be? How come we have the highest tax rates ever in the North Sea when the basin is old and production is declining rapidly? It is amazing that they think it is a good thing.
“We hear the politicians say, ‘We want to manage transition, we don’t want the loss of jobs’ but are they looking at the data? Are the looking at the decline of fields? How many fields are going to be here in ten years’ time?
“It’s incredible that they don’t understand the implications for the supply chain and for the energy transition. The direction of travel is very worrying.”
Jennifer Heiton, chief financial officer of Trojan Energy, said multiples for a sale are directly linked to growth. “If growth expectations are perhaps muted or stagnant then clearly this is going to fall through to the multiples.
“Multiples are difficult to compare from business to business because it is based on the prospects for that company going forward. If I invest x amount of dollars today what will that be in terms of a return profile over the next few years?”
Richard Jacobs, co-founder and chief executive of Alba Partners, said while mergers and acquisitions attracted media attention for the size of the deal, not enough was done to ensure that the entities were properly merged and value created in the aftermath of signing contracts. His firm was working with several businesses to help improve post-deal culture and value.
