More Scottish outfits get cash out on the acquisition trail

LINCOLN-BASED Danwood Group, one of the UK's largest privately owned independent suppliers of office systems, earlier this month sold the subsidiary of Aberdeen-based GBP Telecom, which it bought in 2005.

The buyer was Aberdeen-based Mother Technologies, and Danwood sold it because it did not fit into its core business.

The deal hardly registered on the acquisitions Richter scale but it underlined what seems to be happening more and more in the Scottish business world - Scottish companies are actually buying other companies.

One financier said: "For years businesses in Scotland concentrating on knuckling down, running their business, paying off debts and not buying anything.

"That is changing. You only have to look at the number of Scottish companies on the acquisition trail, mainly down south. You now have a number of good quality Scottish businesses that have access to a very liquid debt market, and access to capital, with the banks keen to lend to businesses growing by acquisition.Managements which know their business, have ambitions for it and are in it for the long-term attract equity finance.More Scottish companies are going down that route."

The list of acquisitive Scottish companies continues to grow, headed by The Royal Bank of Scotland plus Aggreko - which acquired a division of one of the world's biggest industrial groups which others had seen as a predator, Scottish & Newcastle - with Cairn Energy, the Miller Group, Stewart Milne, Scottish Power and Melrose Resources also making takeovers.

Miller and Milne made house-building acquisitions down south but, just to show it can still go the other way in the construction business, Rok paid £31.3 million for the Tulloch Construction Group.

Earlier this month there was a development that underlined the growth and hunger of the kind of private equity which supports buy-outs and acquisitions with the announcement by the Glasgow-based Scottish Equity Partners (SEP) that for the second time in five years it had raised more than £100m in Europe for a venture capital fund.

SEP now has one of Europe's largest and most experienced venture capital investment teams. It focuses on investments in the early stage and emerging growth companies throughout the UK in information technology, healthcare and energy-related technology sectors.

The SEP managing director, Calum Paterson, below, said: "The UK is the most vibrant venture capital market in Europe and our fundraising is a vote of confidence in the market as well as in SEP. We have already identified a number of attractive opportunities for the new fund and have a strong investment pipeline across all three of our core areas of focus."

SEP now has funds under management of more than £300m, and its investors include Scottish Widows and the Strathclyde Pension Fund, whose chief pensions officer, David Crum, said: "SEP gives exposure to global venture capital and access to arguably one of the best, if not the best, UK venture capital firms.

"The increase in corporate buy-outs appears to have been driven by the current global mergers and acquisitions boom - corporate predators often spit out the unwanted parts of acquisitions in the form of buy-outs."

Statistics from the Centre for Management Buy-Out Research, the provider of analysis on the UK buy-out market founded by Barclays Private Equity and Deloitte, show traditional buy-outs from corporates have made a comeback, making up over 40 per cent of the market by value.

For lawyers and other advisers it has been a field day which has lasted more than a year.

To get a flavour of what has been going on check some of the comments from the major legal firms:

Maclay Murray & Spens: "2006 has been a busy year and we see that continuing. Deals have involved a convergence of views on pricing between potential sellers and potential buyers. Whether in the form of private equity, debt or mix, finance for the right deals is available with plenty of competition among funders.

Dundas & Wilson: "We've been involved in complex deals like the demutualisation of The Standard Life Assurance Company and flotation of Standard Life plc; we were appointed to British Energy's panel of preferred law firms, and we advised on Donald Trump's multi-million pound land purchase, South Lanarkshire Council schools £320m PPP award, and Production Services Network Ltd's $280m (£150.8m) MBO from KBR, co-ordinating legal input from 27 countries."

McGrigors: "The year 2005-6 has been a record year for our corporate team in terms of activity levels. That period has seen some of the larger corporate deals in recent years driven by regulatory change (the Standard Life demutualisation) and ongoing consolidation in the retail market space, for example the West Coast Capital's acquisition of Wyevale Garden Centres. The oil services sector remains very buoyant due to the oil price and continues to drive significant deal activity."

Shepherd and Wedderburn: "It has been an outstanding year of high-profile deals. It has been particularly active on the mergers and acquisitions front with major deals for Scottish companies such as Edinburgh Oil and Gas, Scottish & Newcastle, Alliance Trust and Scottish Power."

But it is not just the lawyers who are calling all the shots.

Marks & Clerk, for example, patent and trademark attorneys with offices in Glasgow and Edinburgh, are becoming increasingly involved.

Robert Naismith, managing partner in Glasgow, explains: "Assessing the value of intellectual property is a vital, integral part of mergers and acquisitions. It is becoming the normal procedure in valuing business assets but this message has still to get through to a lot of businesses.

"This can cost them money, could influence the price paid in a deal and it could be a deal-breaker. It is an intangible asset in a number of forms, such as patent rights, trademark right, designs and design rights, copyright and know-how. The intellectual property assets of most businesses typically involve a combination of these rights.

"Businesses are waking up to the fact that these assets might be much more valuable than the traditional fixed assets, such as buildings and stock, as increasing globalisation drives existing and emerging countries towards knowledge-based economies where innovation, design and creativity are encouraged."