Corporate Scotland is no stranger to uncertain trading conditions. Whether driven by political factors, such as Brexit or Indyref, or global economic headwinds, the market's resilience and pragmatism are qualities that have seen it adapt, evolve and respond to such challenges.

In years to come, it is to be hoped that the COVID-19 pandemic will come to be regarded as another moment in time of a similar ilk. What is different, of course, is the humanitarian challenge that the pandemic poses and its traumatic personal and financial impact.

That the emergence of COVID-19 resulted in a subdued deals market throughout the second quarter of 2020 is no surprise. The impact was felt across all industries, with disruption particularly acute in sectors reliant upon discretionary consumer spend. Many companies placed their growth plans on hold as they faced inwards and focussed on preserving cash and trading through. A lack of confidence and visibility around forecasts has created real uncertainty around business valuations, a key challenge for deal-doing. In the north east, oil price volatility and the climate change agenda have acted as additional drags on activity.

But there is evidence of some storm clouds clearing. Many deals did complete at the pandemic's peak and others continue to do so. We have seen a steady flow of deals being done throughout 2020 across a range of sectors as investors, buyers and businesses commit to strategic growth and re-focussing their ambition.

As lockdown restrictions continue to relax, there are signs of a gradual uptick in activity. Private equity is very much at the heart of that, supporting portfolio companies and looking for strategic bolt-ons of resilient, growing businesses. The firepower and appetite are there, and as we emerge from the pandemic PE may look to take advantage of new pricing realities.

Scotland continues to be an attractive place for inward investment, and key sectors continue to attract interest from overseas: prime recent examples being the post-lockdown acquisition of Fife-based frozen finger food company Innovate Foods by Frostkrone of Germany, with funding from German private equity firm EMERAM Capital Partners, advised by Brodies; and the acquisition of the Fairmont St Andrews Bay Hotel by a Hong Kong-based investor, also advised by Brodies.

Companies are considering their strategic options; corporates are divesting non-core businesses; consolidation may be a matter of necessity in some sectors, and fundraisings continue. Banks have been supportive throughout the crisis to date, and with stronger post-2009 balance sheets, and a low interest environment, they will continue to play a key role in recapitalising business and supporting transactions as activity recovers.

To date, the events of 2020 have created a perfect storm for M&A activity. But as valuations stabilise, and price expectation gaps narrow, even in this uncertain market sectors such as technology, cleantech, healthcare, automation and business support services will provide some cause for optimism as we head into 2021. For those looking beyond the challenges of a post-COVID and post-Brexit landscape, there will be opportunities to grasp.

This article first appeared in The Scotsman on 24 September 2020


Neil Burgess

Head of Corporate and Commercial & Partner

Paul Breen

Senior Associate