By Karen Peattie
One in five major businesses in Scotland are "financially stressed", claims new research from KPMG.
KPMG, examining the filings of Scottish businesses with revenues in excess of £10 million, identified 21 per cent of Scottish businesses suffering financial distress, representing a 22% increase over the most recent five-year period.
However, despite the negative trend, Scotland compares favourably to the rest of the UK, where 24% of businesses are suffering financial stress and 4% of firms are facing acute financial distress (3% in Scotland).
The sectors bearing the largest numbers of firms in financial stress and distress, according to KPMG’s analysis, are business services, building and construction, consumer production, leisure and hospitality, and industrial manufacturing.
With the highest levels of stress, consumer production (one in four) and leisure and hospitality (one in three) have witnessed a marked increase in stress since 2017.
Meanwhile, business services and industrial manufacturing are showing stress in line with the Scottish average (one in five) and are tracking largely flat against previous year’s results.
Only the building and construction sector is showing a lower proportion of businesses in stress than the Scottish average (one in six) and an improvement from the previous year, with a year-on-year decline of 20%.
Blair Nimmo, head of restructuring at KPMG in the UK, said: “The analysis reflects our historical experience of the Scottish economy – namely that it doesn’t experience the same levels of volatility as in England.
"When we drill into the data, the population experiencing more acute financial distress in Scotland has remained flat across the last five years. Contrast this with the north of England and London, for example, where distress growth rates of more than 10% have been experienced.
“However, business leaders in Scotland can’t rest on their laurels. The more disappointing results experienced elsewhere, in combination with increased signs of distress in Scotland is concerning and businesses need to be alert to take early action to rectify issues.”
Alan Flower, head of KPMG’s restructuring advisory team in Scotland, said there was "no doubt" that Brexit uncertainty has had an impact but suggested that "well-run businesses that identify issues early and take action will always succeed despite macro-economic or sectoral issues faced".
Meanwhile, Scotland’s deals market is set to see increased activity in 2020, according to PwC which is expanding its deals team to cope with
PwC predicts an increase in the sale of owner-managed businesses while standout firms across all sectors are likely to be more attractive than a single dominant sector. It also predicts that while technology firms will continue to garner suitors from all asset classes, they could attract the attention of corporations seeking operational bolt-ons.
These trends emerge as investors and businesses adapt to a new world where rapid societal change has altered investment strategy across the board.
In this backdrop PwC is not only increasing headcount across its deals team in Scotland it’s also ensuring it has the relevant capability, with the firm’s wider investment in technology meaning 70% of the team have now been trained on and adopted new data and analytics tools.
Although deals volumes reduced in the last couple of years as the UK wrestled with the political and economic uncertainty that followed the Brexit vote in June 2016, the large Conservative majority returned in December’s General Election has boosted confidence in the market as it reduces uncertainty.
These findings were reflected in PwC’s recently published CEO Survey, which found that 90% of UK CEOs are confident to some degree about the prospect of their business growing revenue over the next three years. The survey also revealed that the availability of key skills is the number two business concern for CEOs in the UK, behind only cyber threats, which aligns with the prospect of technology-enabled bolt-ons.
Among the deals PwC worked on in 2019 were the acquisition of SSE's household energy business by Ovo Energy, the acquisition of Alexander Dennis by NFI, the acquisition of Wireless Infrastructure Group by Brookfield Infrastructure and the LDC investment obtained by Commsworld.
“There is a huge amount of capital out there," said Jon Shelley, head of corporate finance at PwC Scotland. "The challenge is that there is enough money, but not enough strong opportunities.
"Private equity funds are having to be far more focused on how to create value, as they are having to pay top dollar for good businesses and are subsequently doing more to make the returns work – that means that international growth strategies, rollouts, bolt-ons and transformational M&A, for example, are increasingly more important on top of a solid organic plan.”
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here