Transatlantic deals: US investment in Scottish firms still strong

Cahal Dowds, Deloitte

Deloitte reports on the transatlantic deals taking place in the last 24 months

US-Scottish M&A (Mergers & Acquisitions) activity held up in 2015 and 2016 despite turbulence in global markets, according to new analysis from business advisory firm Deloitte.
The research, which is part of Deloitte’s third US/UK M&A Deal Monitor, found a total of 40 deals in both directions in the last 24 months – 28 involving US acquirers in Scotland (16 in 2015 and 12 in 2016) and 12 Scottish businesses purchasing assets across the Atlantic (seven and five).
The manufacturing and TMT (technology, media, and telecommunications) sectors were the largest source of activity over the past 24 months, with eight US outbound deals and three UK outbound acquisitions each.
The value of transactions with a disclosed figure topped £4.8 billion, which was significantly up on the more-than £2 billion achieved in the ten quarters to Q4 2015. Of the UK regions, excluding London and South East England, Scotland placed third for US outbound M&A, behind the East (57) and North West (33) of England.
Among the most notable Scottish deals in 2016 were Facebook’s acquisition of Edinburgh immersive audio company, Two Big Ears, and Brown-Forman’s, owner of Jack Daniel’s, £285-million purchase of the BenRiach Distillery Company. In the other direction, John Wood Group PLC added to 2015’s purchases of Kelchner Inc. and The Infinity Group by acquiring Houston-based Ingenious Inc., a supplier of software and consultancy services.
Cahal Dowds, chairman of Deloitte’s corporate finance advisory business, said: “Globally, M&A activity has dropped in the aftermath of Brexit – an expected outcome as the levels of uncertainty increase. Nevertheless, US/UK M&A deals have remained resilient, as has the level of activity in Scotland.
“Some people might be surprised by the number of transactions, particularly in Scottish manufacturing; but the availability of good businesses is driving activity in this sector, regardless of outside factors. Many corporates still have a lot of cash on their balance sheets and the best path to growth for them is through acquisition – that’s likely to remain the case in 2017.
“Despite headwinds, confidence hasn’t been shaken: the US/UK deal corridor continues to be the largest of source of M&A in the world. The US is still investing in Scottish companies and the outlook for the next 12 months remains largely positive, with TMT and manufacturing likely to stay at the vanguard of M&A activity.”
Overall, the Deloitte US/UK M&A Deal Monitor identified that US outbound deals to the UK rose 3.6% in the last six months, while UK outbound deals to the US fell by 20.4%. However, the final quarter of 2016 saw UK outbound M&A leap to $86.4 billion in value, ensuring the US/UK deal corridor performed roughly in line with the global trend for M&A.
Dowds said: “Two trends stand out in the second half of 2016, the strength of US outbound dealmaking and the sharp fall in UK outbound dealmaking. Widespread expectations of a collapse in US outbound dealmaking following the UK’s vote to leave the EU has not come to pass. On the contrary, US buying of UK assets has outperformed the previous six months.
“Companies everywhere are being tested on their ability to deal with technology convergence, and if you have a technology need in your product lines, then today there is a great opportunity to go out and find a company that can solve that.  If you are not investing in those solutions organically then you have to buy those solutions, and quickly.  This is going to create a lot of future dealmaking.
“The US is looking beyond uncertainty as the fundamentals of M&A have seldom been stronger. In this low economic growth environment, a key way to get increased revenue is to buy it. The quest for growth continues.”

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