Advisers anticipate end-of-year upsurge in deals after UK budget
With speculation rife over potential tax changes in the upcoming UK budget, Scotland’s dealmakers are preparing for a busy end to the year.
The Chancellor, Rachel Reeves, has ruled out income tax rises, but capital taxes are very much in the spotlight and the UK Government has also signalled plans to introduce new rules on the tax treatment of private equity investors.
Alison Gilson, corporate partner and head of the Edinburgh office at law firm Shoosmiths, believes expectation about changes will fuel increased activity in the deals market.
“As the autumn budget approaches I anticipate an acceleration in transactions, with clients and contacts citing concerns around potential changes to the Business Asset Disposal Relief and the impact on capital gains tax rates,” she says.
Gilson noted a recent PwC report referring to the UK deals market as a “coiled spring” waiting for the right conditions.
“Hopefully measures taken by the new UK Government, including in the budget, will incentivise a flow of new deals,” she says.
Graham Cunning, head of corporate finance for Azets in Scotland, says given timescales there is now little business owners can realistically do to try and pre-empt any decisions by the Chancellor. “It’s very much wait and see. In theory people could look at accelerating exit plans in advance of the budget, but there’s not much time to play with now although any changes may not take effect until April,” he says.
Cunning recalls a very hectic period for transactions after the announcement that Business Asset Taper Relief was to be abolished.
“However, that was only for the more generous Entrepreneurs’ Relief to be introduced soon after anyway,” he points out.
According to the latest data from Experian’s MarketIQ, the Scottish deals market is currently seeing a level of stability after the disruption caused in recent years caused by the pandemic.
The 196 deals recorded in the first half of 2024 were at a similar level to the second half of 2023, although the mid-market has seen a sizeable increase in both volume and value of transactions.
A significant proportion of transactions of late have involved overseas buyers, continuing a key trend of Scotland’s deal market in recent years thanks in part to favourable exchange rates. By far the largest acquisition was a deal by France’s Vinci Airports to take a majority stake in Edinburgh Airport.
However, the North Sea – traditionally the driver of much of Scotland’s deal activity – continues to be quiet.
Fiona Kindness, partner in the energy team at law firm Addleshaw Goddard in Aberdeen, says: “The UK continental shelf M&A market has gone from being hot in 2022 to an almost complete standstill – it is a highly challenging space in which to invest.”
The windfall tax on energy producers, which has now been extended and increased, is cited as a significant factor but Kindness also highlights lack of access to capital allowances for exploration that other countries offer.
“This loss of capital allowances in the UK hinders new field developments and is inhibiting new transactions. Instead, we are seeing independents looking to diversify their portfolios and explore other basins – including Norway, which was traditionally seen as a more expensive basin.”
However, Kindness sees signs of activity in the oil and gas supply chain picking up. “We expect to see this continue over the next few years. The supply chain is also forced to look globally now as there may be fewer big projects to service within the UK.”
Recent deals in the services sector include the acquisition of Aberdeen’s Coretrax Technology by Texas-based Expro Group. Following news that Dubai’s Sidara was pulling out of a potential bid for Wood, the Scottish engineering giant recently struck agreements to sell its stake in two non-core businesses for £125m.
Although the latest deals statistics include a clutch of high-profile fundraisings, Cunning of Azets says that in the current heated market firms looking to secure investment need to be very well prepared.
“There is no shortage of money out there right now whether it’s from Scottish Government-backed funds, venture capital or private equity. But there are also just so many businesses looking for funding for business expansion that the equity providers are snowed under.
“That means you have to be on top of your game, have a good story to tell and get to it quickly. Investors just don’t have time to go through pages of pages of detailed documents and if it doesn’t grab them they’ll just move onto the next opportunity.”
