Private equity investment in Scottish businesses surpassed pre-pandemic levels in the first six months of 2022, according to new figures from KPMG.

35 private equity deals worth £2.1 billion were recorded in the six months to June, marking a 75% increase compared to the first half of 2019, in which 20 deals worth £1.4bn were recorded.

Despite uncertainty caused by the Ukraine conflict and the cost-of-living crisis, KPMG analysis shows that the volume 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.

Commenting on the analysis, 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.”

Challenges ahead for Scottish private equity funding

Although the investment increase highlights an impressive performance for Scottish businesses so far this year, Williams warned that the market is likely to soften in the second half of 2022 as uncertainty returns.

He said: “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.”

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Jonathan Boyers, Head of KPMG’s UK Corporate Finance practice said that ongoing economic and political crises will likely impact private equity investment throughout the latter half of 2022.

He commented: “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.”

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