New wave of corporate venture

In Aberdeen, some analysts expect a revival of interest in funding oilfield services
In Aberdeen, some analysts expect a revival of interest in funding oilfield services

Interest in Scotland’s prospects and the level of deals for some US private equity companies is opening up a fresh level of activity in its cities

By Frank Simpson

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US private equity firms and trade buyers are eyeing up Scottish firms as sterling’s weakness against the dollar since the UK’s ‘Brexit’ vote to leave the European Union translates into a healthy price cut for overseas purchasers.

“We see more interest from private equity, and greater willingness by Scottish companies to engage with it,” says Douglas Crawford, a corporate partner at Scottish law firm Brodies.
“The high liquidity of some US private equity companies is opening up a level of deals activity in Glasgow and Edinburgh that we have not seen for a while.”

Douglas Crawford says that inward investment is at record levels
Douglas Crawford says that inward investment is at record levels

Even in Aberdeen, Europe’s offshore oil and gas logistics capital, subdued M&A activity in the ‘lower for longer’ oil price era could be ending. “PE and patient capital investors in oil and gas infrastructure are starting to circle prospects,” Crawford reveals.

“Some analysts expect a revival of interest in funding oilfield services companies as oil prices firm up. Generalist buyers are in evidence too. US corporates are also looking at Scottish companies for strategic business reasons, though it helps that it is 10% cheaper for dollar earners to buy UK companies than before the Brexit announcement.”

Within Scotland, financial services technology (fintech) investments are in favour, adds Grant Campbell, head of Brodies’ Commercial Services Division: “The country is positioning itself as a major fintech hub on the world stage.”

Regulation is a key driver of fintech. The EU’s Payment Services Directive (PSD, 2007/64/EC), and now PSD2, which is scheduled to be incorporated into UK law by January 30, 2018, are allowing some technology suppliers access to some data and infrastructure owned by banks.

“In a tightly regulated sector, this data is very good quality, and banks must decide to either just let PSD2 happen, or to monetize data by working with tech suppliers,” Grant explains.

“Also, EU data protection laws, such as the General Data Protection Regulation, will come into force pre-Brexit, so US investors in the UK need to know that this big change will apply.”
Uncertainty created by Brexit negotiations is, in a sense, nothing new to Scotland’s financial sector. It has proved resilient through major polit ical and economic change over two decades.

Crawford says: “The Scottish Parliament was established in 1999, the Lehman Brothers collapse and its aftermath impacted greatly on banks, and then there was the 2014 Scottish independence referendum in which a majority of the electorate voted to remain within the UK.

“Change has been par for the course here, yet inward investment is at record levels and the Attractiveness Index published by (global accountants) EY consistently ranks Scotland highly as a location in which to invest. It is a great place to work and live, has a strong talent pool, and enjoys affordable property.”

Scotland’s legal system is separate from that of England and Wales, though commercial law has applied evenly across these jurisdictions.

“Post-Brexit, the Scottish government’s attitude probably means that Scotland will have closer economic and political ties to Europe than England does,” Crawford suggests.

“Brodies has the top constitutional team in Scotland, supplemented by experts across the firm. Keeping abreast of political developments is very important to our clients.”

For more information, visit brodies.com