When I wrote an article 12 months ago on my predictions for the Scottish mergers and acquisitions market in 2011, it was entitled “on the road to recovery”.
So how good was this prediction?
Well, in terms of deal activity, we at Anderson Anderson & Brown were involved in 37 transactions in 2011, which was almost exactly that achieved in 2009 and 2010.
It appears therefore that we are still on the road to recovery and things haven’t improved as much or as quickly as we would have liked.
The lack of debt funding in the market continues to be a huge challenge.
Generally speaking the banks, despite protestations to the contrary, are still struggling to come to terms with their own internal challenges, with the resultant negative impact on their customers.
Unfortunately, I do not see any huge improvement in the short term as the banks still have a way to go in improving their own financial position to the satisfaction of the regulators.
We must simply accept this fact and move forwards and continue to find more innovative ways to fund transactions.
If not from the banks, then from where?
Trade players will still figure prominently in the market in the coming year and private equity houses appear to have significant funds at their disposal and need to be encouraged to come more strongly into the market; there is much talking being done and the oil and gas service sector is one that the equity houses south of the border are attracted to. It is now hopefully time for investment rather than words.
One hugely-encouraging development is the launch of the business growth fund, with £2.5billion of committed long-term capital providing equity investments in the range of £2million-£10million. This will be of huge benefit to the mid market; the investment process will be challenging, like any other equity investor, but the benefit being that there will be an emphasis on working in partnership with owners and managers and investing in the longer term, rather than the relatively short term outlook of most equity houses currently. Despite only being launched in April, we are seeing the positive impact of their activity in the north and north-east, with investment proposals at various stages of development.
So what does this all mean for 2012?
Well, I suspect my prediction in 2011 still holds true in that we are still on the road to recovery, but we must continue to be optimistic and committed to making deals happen, which will take the collective effort of all involved – vendors, purchasers, equity and debt providers and the professional teams.
Deals will happen but we all need to pick up the pace – deals are taking too long to complete leading to frustration all round and, on occasions, jeopardising successful outcomes.
Mike Brown is head of corporate finance at Anderson Anderson & Brown.
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