PwC Scotland to boost Deals team as confidence returns to investment market

Jason Morris and Jon Shellley

SCOTLAND’S deals market is set to see increased activity in 2020, with a ready availability of cash expected to attract sellers as Brexit uncertainty dissipates, leading PwC to expand its deals team.

PwC predicts that this year will see an increase in the sale of owner-managed businesses, while stand-out firms across all sectors are likely to be more attractive than a single dominant sector. And while technology firms will continue to garner suitors from all asset classes, they could also attract the attention of corporations seeking operational bolt-ons.

These trends emerge as investors and businesses adapt to a new world where rapid societal change has altered investment strategy across the board.

In this backdrop PwC is not only increasing headcount across its deals team in Scotland it’s also ensuring it has the relevant capability, with the firm’s wider investment in technology meaning 70% of the team have now been trained on and adopted new data and analytics tools.

Although deals volumes reduced in the last couple of years as the UK wrestled with the political and economic uncertainty that followed the Brexit vote in June 2016, the large Conservative majority returned in December’s General Election has boosted confidence in the market as it reduces uncertainty.

These findings were reflected in PwC’s recently published CEO Survey, which found that 90% of UK CEOs are confident to some degree about the prospect of their business growing revenue over the next three years. The survey also revealed that the availability of key skills is the number two business concern for CEOs in the UK, behind only cyber threats, which aligns with the prospect of technology-enabled bolt-ons.

Among the deals PwC worked on in 2019 were the acquisition of SSE’s household energy business by Ovo Energy, the acquisition of Alexander Dennis by NFI, the acquisition of Wireless Infrastructure Group by Brookfield Infrastructure and the LDC investment obtained by Commsworld.

The firm also worked on the disposal of Howden to KPS Capital, on the disposal by SSE of stakes in the Stronelairg and Dunmaglass wind farms to Greencoat UK Wind, on the sale of Terra Nova Technologies by Wood Group plc to Murray & Roberts, Sale of Dragon LNG to Ancala Infrastructure and the i newspaper by JPI Media to DMGT.

Deals of this nature are expected to increase in 2020 with Jon Shelley, head of corporate finance at PwC Scotland, said:

“There is a huge amount of capital out there. The challenge is that there is enough money, but not enough strong opportunities. Private Equity funds are having to be far more focused on how to create value, as they are having to pay top dollar for good businesses and are subsequently doing more to make the returns work – that means that international growth strategies, roll-outs, bolt-ons and transformational M&A, for example, are increasingly more important on top of a solid organic plan.”

One of the main trends expected in 2020 is how fast-paced changes in societal attitudes will impact the investment market.

Shelley commented:

“Change is coming at us quicker than ever. Boards have got to be cognisant of new themes and trends and how they impact their  business and then be very agile to adapt to them. Some people will be caught out, some will prosper – look now at the power of voice for energy transition and veganism, the social change regarding both are just massive.

“For buyers and  investors, it is not just a case of thinking about what a business’ position is now, but also what it will look like four to five years from now. In a world where trends are moving so quickly that is getting increasingly tricky to do. I don’t think anyone can predict with robustness what any one business’ market is going to look like in three plus years, so the game now is much more about how you develop a business and strategy that can adapt to whatever comes at you..

Shelley said this includes backing management teams that have a proven ability to successfully adapt strategy while strategic plans need to be shorter term and need to be revisited more frequently.

He added:

“Where once a five-year strategy was written and implemented and then the cycle repeated, now it’s more like a rolling three-year strategy that needs to be revisited every three months – this takes a new kind of discipline.”

In addition, activity will be buoyed by businesses who have been sitting on plans now more likely to move forward with them. This could lead to the possibility of an increase in the sale of owner-managed businesses, with sellers now able to make decisions from a position of greater clarity.

Shelley added:

“With the uncertainty that’s been out there, some owners have very understandably been thinking that if they want to realise the value of their life’s work then perhaps it has not been the time to sell. A period of more clarity could change that.”

Another trend which could emerge in 2020 is corporates who are looking for a technology angle to prosper in their core business.

Jason Morris, head of deals at PwC Scotland commented:

“The fear now is that if you don’t have a digital capability and don’t go out and get one soon you might find your core business is not the core business you thought it was. The best tech start-ups and operators are highly attractive to incoming corporates.”

Morris also predicted a continuing trend of “stars” in individual sectors rather than  one whole sector being lauded. This has led to the best performers in individual sectors attracting high multiplies and valuations because they are so sought after.

He added:

“The better performers in each sector are thriving. This is beneficial because you want to see success rewarded and innovation encouraged. These stars will prosper and that will encourage more entrepreneurs to do something innovative and take some risk. It’s probably the best time to now believe that you can take a little risk. Whatever your business it’s a good time to invest.”

Infrastructure, construction, energy and communications are sectors expected to see activity this year – as illustrated by the investment made by Lloyds Banking Group’s LDC private equity arm in telecoms firm Commsworld in December 2019.

The energy sector is also expected to see increased activity as the North Sea industry continues to work through energy transition.

Shelley commented:

“There has been a lot of activity in the upstream sector but not in services so that may well change. Sustainability is also manifesting itself in a few ways. There are an increasing number of pension funds and LP investors that will only invest in funds that will only invest in certain things, and environmental factors are becoming more prevalent here.”

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