THE chairman of Scottish law firm Burness Paull has signalled hope of an improvement in corporate deal activity now there is more certainty over where interest rates will plateau, following a recent flurry of increases to combat soaring inflation.
Peter Lawson said the surge in the base rate, which has increased from 0.1% in December 2021 to the current 5.25%, has in recent months weighed on transaction levels because there was no visibility over the level at which rates would peak.
However, he expects there to be an uptick in deals now that a levelling off is in sight. A recent poll of economists by Reuters forecast that the Bank will make one more increase, to 5.5% in September after official figures showed the rate of inflation had slowed, though a significant minority felt rates may still go higher this year.
Mr Lawson’s comments came as the latest results from Burness Paull revealed a rise in turnover but slight fall in profits.
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The Edinburgh-based firm increased turnover by 6% to £83.2 million in the year ended July 31, and attributed this growth to the strength of its service lines in corporate finance, real estate, banking and funds, dispute resolution, and employment.
However, profits at the firm dipped marginally to £35.5m from £35.7m.
Mr Lawson said he was “pleased in the circumstances” with the result, which came amid “subdued” conditions in the mergers and acquisitions (M&A) and real estate markets.
He highlighted the “strategic focus” that the firm has placed in recent years on diversifying into new service lines such as immigration, rural business, private client, family, as well as investing in growth areas like technology, financial services regulation, and insolvency and restructuring.
Mr Lawson said: “We do see that (insolvency and restructuring), unfortunately, as a growth area over the next few years as we continue to deal with the pandemic issues that the economy is facing.
“But with interest rates starting to be a bit more certain as to when they are going to plateau because of inflation starting to come down, we are more confident in the investment market going forward. We don’t think there is going to be an enormous increase in deal activity, but we do see a trend upwards.
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“There was a pandemic M&A boom which was a very busy time for us. But booms are booms and it was never going to continue at that level of M&A, which was at an all-time peak in 2021.”
Mr Lawson said it had been “undoubtedly the case” that deal-makers had put activity on hold when interest rates were rising rapidly and there was no certainty over when the run would end.
He said: “When they keep going up, it’s just that movement upwards which causes the stepping back. But there is more confidence that interest rates are about to peak. Then you can hardwire your costs into the deal, and you can actually make it work, whereas if it is moving around, it is harder to do. That just makes investors step back and wait.”
Burness Paull highlighted the acquisition by Chesnara, a life and pensions consolidator, of 47,000 life insurance and critical illness policies from Canada Life among the deals it advised on during its most recent financial year.
It advised Brockwell Energy on the financing of the £300m, 220 megawatt North Kyle onshore wind farm in East Ayrshire, and Maven Capital Partners and other shareholders on the sale of Blacktrace, a developer of scientific instrumentation, to Unchained Labs. It also advised housebuilders on the sale of more than 2,000 homes with a combined value of more than £650m in Scotland, and on deals to deliver thousands more in the private market and social housing sectors.
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While in recent months major housebuilders have slowed activity down as higher interest rates have pushed up mortgage costs, Mr Lawson expressed confidence in the long-term prospects for the sector, chiefly because there is “still a lack of housing supply”.
He said: “They do need to keep replenishing the landbank and building houses. There is more optimism and that goes back to the increased certainty that interest rates, if they have not peaked now, they are about to peak.”
Mr Lawson also underlined the firm's hopes of winning work in the renewables sector and in the North Sea, where there has been a resurgence of activity in light of Russia’s invasion of Ukraine.
Burness Paull recently moved to state-of-the-art offices in Glasgow and Aberdeen, with the latter coming as the market "re-energised”.
Mr Lawson said: “We do see significant opportunities for years to come there.”
Burness Paull now employs more than 670 people across its offices in Edinburgh, Glasgow, and Aberdeen, and 89 partners. Five lateral hires were made last year, including the recruitment of Mark Kirke as the new head of the firm’s construction and projects division. Four internal partner promotions were made, effective from August 1.
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