The professional services firm’s new Mid-Market Private Equity Report highlights that, in Scotland, 21 deals worth £2.26 billion were completed during the first six months of this year, signifying a 25% drop in volume compared to the same period in ‘22.

Across the whole of the UK, mid-market private equity deals accounted for nearly half of all PE activity in H1 ‘23, with investments into the business services as well as technology, media, and telecommunications (TMT) sectors continuing to drive deal volume.

The TMT sectors represent 16.8% of all mid-market PE deals in the UK, despite TMT deal volumes falling 32% in H1 ‘23 compared to H1 ‘22.

Regarding the UK private equity market as a whole, mid-market included, 689 deals worth £70 billion were completed in H1 of ‘23, representing an around 24% drop in deal volume and a 22% decline in deal value.

Speaking on the underlying causes for the comparative drop — and commenting on how figures now relate to pre-COVID numbers — Graeme Williams, head of corporate finance M&A for Scotland at KPMG UK, said: “As we stepped into 2023, many were hopeful that the market would stabilise.

“However, it quickly became clear that rising prices for goods and services, along with higher interest rates, and uncertainty about world events, continued to erode confidence and impact deal volumes.

“These challenges also impacted the debt markets and we saw a significant increase in the price of debt, a much more cautious approach from credit committees to new deals and reduced leverage multiples.

“Overall, the private investment market had about 25% fewer deals. However, the level of activity seen in the first half of 2023 is still on par with pre-pandemic levels. Deals are still being made, but they are taking longer, unless they involve really good assets.”

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Williams also mentioned there are reasons to feel positive about the UK’s M&A market, despite the aforementioned drop in deal volumes.

In particular, he noted: “While the number of private equity exits has remained low in the first half of the year, there’s growing pressure in this area. It’s only a matter of time until there’s an increase in exits. Additionally, there’s a lot of available private equity funds that need to be invested in new opportunities sooner or later.

“Both factors could lead to a significant rise in mid-market private equity activity, given the right market conditions. The foundation for making deals is already in place. As greater economic, political, and financial stability returns, it won’t be too long before the M&A market becomes active again.”

Earlier this month, DIGIT reported on another KPMG analysis which found that venture capital into Scottish startups specifically were down around 80% in deal value in Q2 ‘23 compared to Q2 ‘22.