Graeme Williams

35 private equity deals worth £2.1bn were recorded in the six months to June - the largest half year number in the last five years and a 75 per cent increase in volumes compared with the first half of 2019 when 20 deals worth £1.4bn took place.

Despite uncertainty caused by the ongoing conflict in Ukraine and the cost-of-living crisis, both volumes and value of mid-market investments in Scotland grew year on year by 46% and 100% respectively, with technology and life sciences the most in-demand sectors.

Despite the return to form, KPMG suggests that the market is likely to soften in the second half of 2022, as uncertainty returns.

Graeme Williams, director of corporate finance M&A at KPMG UK, said: “After back-to-back years of disruption for dealmakers and investors we saw a real return to form in the first half of this year, as pent-up demand was released across Scotland’s mid-market.

“It’s heartening to see half year levels surpass pre-pandemic volumes and values, and we’re very much on track for a record-breaking year well above five-year averages, even if investor activity cools off in the months before Christmas.

“However, with so much uncertainty globally and across the UK’s economy, diligence and valuations may become more challenging, which in turn may make it harder for private equity houses to move forward with conviction when looking for the best investment opportunities.

“As private equity houses continue to be challenged by their institutional investors on their own environmental, social and governance (ESG) agendas, those who have made the biggest strides in these areas continue to command significant market interest at high pricing multiples.”

Looking ahead to H2 2022 onwards

Providing his perspective on private equity trends to look out for across the UK, Jonathan Boyers, head of KPMG’s UK corporate finance practice, added: “Existing factors such as high inflation, the Russia-Ukraine crisis and oil price rises will persist. These will only increase banks’ discretion and perpetuate the slowdown in the number of mid-market deals in H2 2022. On a brighter note, once oil prices level off and interest rate rises come through, the market should pick up again.

“TMT and Business Services will continue to dominate mid-market deals for the time being. However, once inflation is back under control, the more cyclical sectors, such as consumer and industrials, will see a fast-paced recovery and an uptick in private equity activity as a result.

“As ESG climbs up the corporate agenda, dealmakers will be on the lookout for deals that offer an ESG angle. Due to their shortage, the multiples of these deals are likely to skyrocket as dealmakers grapple with delivering on their ESG commitments.”