Inverness and Cromarty Firth Green Freeport and the Scottish M&A market

The Inverness Chamber of Commerce session is the first business engagement event since the freeport announcement, and focuses on the aims and aspirations for this special economic zone, as well as the potential benefits and next steps.

We'd naturally expect to see a Cromarty cluster of beneficiaries, but the economic benefits should spread much wider.

Expected to be operational later this year, this special economic zone should make it cheaper and easier to do business in that area. Working across our Inverness, Aberdeen and Edinburgh offices, we’ve been supporting businesses in Invergordon, Alness and the surrounding communities for many years now.

We are seeing widespread interest in supporting this new opportunity, including from clients currently based in Aberdeen. Such support may include through joint venturing; being part of the supply chain; or looking for corporate or commercial property acquisitions.

With that in mind, let's take a look at what we're seeing across the Scottish market, focusing on internationalisation, the energy transition and market consolidation.

Last year

The deals market largely performed well last year in terms of volume and value, notwithstanding some hiccups along the way. Delays were likely due to political and economic uncertainty as some investors pressed pause to see how their industry would be impacted.

The huge increase in the price of energy and weakened consumer confidence meant 2022 was not the year for some prospective sales.

Such challenges also made the average sales process longer, with periods of exclusivity expiring whilst the buyers and sellers continued to talk. Some expedited transactions were helped by buyers based abroad taking advantage of the attractive exchange rate.

2023 so far

Our team has had a very promising start to the current year.

For example, January saw the completion of three company acquisitions and several business transfers coming very close to completion — these have since been finalised.

As with last year, a high percentage of our transactions have an international element. Inward investment has included from Scandinavia and North America and outward investment including to East Asia.

Sectors seeing particularly healthy activity include healthcare, technology, and energy.

For example, deal highlights for 2022 included advising TÜV NORD GROUP on its acquisition of a minority stake in Global Surface Intelligence Ltd (GSI), sitting alongside Par Equity and others as investors. GSI uses satellite imagery together with other data sources and machine learning to deliver wide-scale forest inventories.

Net zero opportunity

Looking ahead, our long-standing energy niche continues to evolve into decommissioning and energy transition-related work.

Indeed, with the journey to net zero front of mind, interest both in businesses with technology and software that can help with that, and in those organisations with strong ESG credentials, continues to grow. We’re seeing some investors willing to take the long-term view and invest in what might be seen as speculative projects where new technology may have game-changing potential. This has allowed some pioneers to exit at attractive valuations.

Consolidation and market observations

Regardless of location, there is appetite in the market for acquiring well-run businesses with protected intellectual property. Clients have also been active in what we’d call “housekeeping” re-organisations. For some that has meant adding to their group structures, for example, to keep long term assets (IP and owned buildings) separate from trading risks.

For others, this has involved consolidating their businesses and removing subsidiaries from their group structure following past acquisitions. Groups should review their corporate structure regularly, not just when a sale is imminent, or a major new liability has been identified.

Last year, we acted in the sale of a pharmacy group, hard on the heels of another such sale in the preceding year. This is just another example of consolidation in a given sector for greater market share.

In terms of market observations, the trend towards internationalisation appears to be accelerating. Already in 2023, in addition to the energy hub locations we regularly work with, we have been doing significant business with Spain, France, Italy and Hong Kong, amongst others.

In part, this is driven by a drop in the strength of the pound — with valuations certainly becoming more appealing for international investment. That said, cross-border transactions have, for decades, been a main element of our work, given our long-standing involvement in the energy industry.

You can read further team commentary in the corporate section of our news and views page, and please don't hesitate to get in touch with me if you have a matter we can assist with.

An earlier version of this article appeared in The Press and Journal on 24 February, 2023.