This article was originally published in The Press & Journal.
A couple of years ago, as we were emerging from lockdown, I participated in an Energy Voice panel comprising local M&A specialists. In response to the question, ‘How does the north-east M&A landscape look going forward?’, I responded positively – and this proved to be the case.
Aberdeen has generally proved itself to be resilient and – in large part due to its status as a global energy hub – it has weathered, and even thrived, in tough times.
Having now emerged from the pandemic, we now face a new set of challenges to businesses – namely rising costs, materials shortages, rising borrowing costs, war and, for the energy sector, increased taxes.
Of course, the rising cost of energy proved to be a double-edged sword. While business costs increased, eroding profits, the expectation was that, in the north-east, this could lead to increased investment by energy operators and trickle down to the supply chain, as well as provide an indirect benefit to businesses not involved with the energy sector, for example, retail businesses, house builders and financial services organisations.
This all set the scene for a thriving M&A market; then the Government announced it would be applying an increased windfall tax on operators’ profits.
So, a lot going for the local business sector – but plenty of challenges, too.
How, then, did all of this play out in terms of the effect on the M&A market in the north-east and what is the outlook this year?
In our experience, there was little to no slowdown in M&A activity in the north-east last year, and we were instructed in relation to transactions where the aggregate deal value was over £1 billion.
One of our particular highlights in the north-east region in 2022 was acting for Russell Gibson Financial Management in the sale of the company to One Four Nine Wealth, growing the One Four Nine Group’s footprint north of the border and boosting its assets under management to over £800 million.
2023 has started off positively, too. We recently advised a large service company in the oil and gas sector on an international restructure with a value of over $140 million, and we advised STC Insiso on the £2 million equity investment in the company by BGF, which will allow it to expand its ever-growing suite of software products and solutions.
Mark Rushton, CEO of STC Insiso, said of the deal:
“This investment marks the next chapter in our exciting journey. Our legal support from Rod and the team at MacRoberts was invaluable, and we’re looking forward to accelerating the development of the products and services that we know will make a big difference to our valued clients around the world.”
Looking ahead, the market shows no signs of slowing down, and we are continuing to advise businesses across the north-east on a wide range of M&A transactions. Many of these transactions are traditional sales to other businesses. Some are two-stage, where the businesses are looking to secure investment by way of private equity investment, with a view to growing their business through strategic acquisitions, before selling the enlarged business.
The key for us is to work with clients as early as possible in the M&A process. Clients should be aware of who is buying in the sector, who might buy or invest in their business, what price they are paying and how the client needs to plan for their own exit. The buyside is the flip of that. Larger corporates and PE-backed SMEs have their own acquisition strategies, but there is no reason why smaller or mid-sized SMEs in the energy sector should not also be considering bolt-on acquisitions, joint ventures or mergers as part of their own exit strategy. We are increasingly finding that clients really benefit from that forward-looking approach.
An alternative model is also gaining traction. Not exactly new to the market – but, until recently, not as popular a choice for north-east based businesses – we are seeing more owners looking to exit through selling their businesses to Employee Ownership Trusts (EOTs), established for the benefit of all of the employees of the company. While this type of arrangement isn’t suitable for all businesses, it can provide a tax-advantageous route to disposal without going to the marketplace to secure a buyer, and potentially creates a wider marketplace for the sale of the business.
Carole Leslie, Director of Ownership Associates, said:
“Employee ownership is growing rapidly across the country with Aberdeen and the north-east being a particular hotspot for business owners opting to sell their business to an Employee Ownership Trust. By taking this route, the business owner is able to plan their exit at their own pace, whilst rewarding loyal staff by securing the company locally, providing valuable employment for many years to come. That the sale to an EOT is exempt from Capital Gains Tax is an additional bonus for shareholders.”
How can we help?
MacRoberts' Corporate Finance team advises on all areas of corporate law, including start-up and venture capital deals, joint ventures, business restructures, mergers, acquisitions, disposals, selling your business, investing in other businesses, securing equity investment and more.
Please contact us to discuss your requirements and how we can support you.