Welcome to Scotland

Similar in size to Austria and with cities that have some of the largest populations in the UK, Scotland is also one of the least densely populated areas in Europe. For investors, the size of the region and geographic disparities create challenges and opportunities in equal measure.

Richard Pugh, investor at BGF, sums up the situation: “It’s a large place with a relatively small number of companies. We have invested in businesses in Inverness, Aberdeen, Glasgow and Edinburgh, which is a big area compared to, say, Manchester, Leeds or London. It makes local working relationships and shoe leather very important. You have to find the interesting businesses and often explain the potential benefits of external investment, sometimes over years. But you can then unearth a real gem that might not come to market via an adviser process.” 

Investment community

Despite its size, most businesses – and therefore any investor activity – are centred in clusters, much of it focused around the ‘central belt’ encompassing Glasgow and Edinburgh. A concentration of advisers has helped develop a strong corporate finance community feel and made the region largely self-sufficient.

“Scotland – and in truth every regional market – is a village,” says Lee Donaldson, investment director at LDC. “We have a tight-knit community where investors, intermediaries and banks all tend to know each other. It’s efficient in that entrepreneurs and founders can connect quite quickly with sources of capital.”

Investors are well served by lawyers, corporate finance advisers and banks. There may be occasional need for external due diligence advisers, or larger firms may look to leverage colleagues across the UK on an IPO or a major debt raise, but this tends to be the exception rather than the rule. 

“It is not a huge market so people tend to work well together,” agrees Malcolm Kpedekpo, investment partner at Panoramic Growth Equity. “They like to live and operate here, which helps build a good community and collegiate experience. Take our investment in Bullet Express, a Glasgow-based supply chain logistics business, in October 2023.” Bullet’s two founders had run the business for 30 years and were looking to transition, with the MD stepping up. This was a multi-million-pound investment in the MBO for Panoramic, alongside co-investors Maven and Emerald. “The vast majority, if not all, the advisers were Scottish, including corporate finance and legal,” Kpedekpo adds.

In addition to a supportive community, investors have benefited from governmental support for young companies. “Scottish Enterprise and the Scottish National Investment Bank (SNIB) are putting a lot of money and effort into early-stage businesses, which has got the ecosystem up and running,” says Kpedekpo. It is an important part of the jigsaw at the earlier stage of a company’s evolution, and feeds into the pipeline of companies looking for growth support further down the line. BGF works closely with SNIB and has three co-investments with them. 

The size of deal across the region tends to be smaller, generally in the sub-£20m range. According to Scottish Enterprise, in 2023 there were no deals above £50m in Scotland.

“We’d like to see more of the bigger deals,” says Donaldson. “The raw ingredients – good-quality businesses and people, and world-leading universities – are there. Historically, businesses tended to take offers from overseas trade buyers, meaning that independence is lost, as is the demand locally for further rounds of investment.” 

More positively, he continues: “It’s also a less competitive market than London. We are one of the few private equity firms on the ground investing £10m and upwards in businesses.”

Sector expertise

Reflecting the prevalence of smaller-size deals, the Scottish universities have been successful in monetising their research expertise by spinning out companies, particularly in health sciences. Investment in Scottish spinouts made up 32% of total Scottish investment, a higher proportion than the UK overall.

Sector-wise, technology and tech services stand out. Kpedekpo points to Skyscanner – one of Scotland’s first unicorns and headquartered in Edinburgh – as an example of the potential for start-ups to thrive and retain skills in the area. 

The big banks have also had an effect. “Edinburgh has long been a financial centre,” explains Pugh. “Back in 2007/2008, RBS and Bank of Scotland did more debt-raising M&A than would have been done in London. That has spawned a successful tech industry in Edinburgh and Glasgow. More recently, Glasgow in particular has seen investment from firms like JP Morgan. There are a lot of really high-quality people and a slightly lower cost base than in London.”

With the vast majority of the population clustered in the central belt, there are inevitably a lot of companies in and around that area, although investors also mention Dundee for its focus on gaming, as well as Inverness and Perth. Meanwhile Aberdeen, with its historical links to oil and gas, almost operates in its own silo.

East coast alone

“Aberdeen used to be relatively self-sufficient with its own ecosystem, its own investors and advisers and local companies that worked closely together. Historically you had to be in that market to operate there, but it has opened up more with its transition from oil and gas,” says Kpedekpo.

Pugh agrees: “There used to be more private equity deals being done in Aberdeen than in the rest of Scotland put together. It’s always operated with a distinct set of advisers and investors that are more comfortable with the pipes of investment that exist there.” 

He points to the industry’s transition from oil and gas to renewables as sparking new innovation and investment. BGF’s £15m investment into Sulmara, a service provider to the offshore wind sector, in November 2024, is one such example. Pugh explains: “Sulmara was set up by someone previously in the oil and gas industry who saw an opportunity for those skills and technologies to be utilised in offshore wind. I had known the company for a number of years and we agreed the deal without external advisers involved. We subsequently relied on a number of high-quality Scottish-based advisers to help us complete. We also added a non-exec director who was also based in Scotland.”

While Aberdeen is siloed both from a geographic and a sectoral viewpoint, the same is not strictly true of the central belt, where Edinburgh and Glasgow are in close proximity but separate. Donaldson believes this may act to its detriment. “There might be more momentum in the deals market if there were one single population in the central belt,” he says. “In Aberdeen, founders grew confident working with private equity as they had a number of friends, or contacts, who had done so. The central belt is more dispersed, which makes it harder for people to have those obvious touchpoints.”

While admittedly dwarfed by London, in 2023 Scotland retained its position as the top region outside the Golden Triangle (London, South East and East of England) for investment value, at £575m. Newer entrants such as Puma Growth Partners and Foresight, and advisers Alvarez & Marsal, are joining the solely Scottish-based investors and advisers focused on the local market, and the broader-based UK investors who have already established a presence in the region. Increasingly, since the pandemic, investors outside the region are connecting with companies who are more open to having virtual meetings. 

“COVID-19 changed the playing field,” says Donaldson. “Before, if you didn’t come up on a plane, you wouldn’t be taken seriously. Now, it’s far easier for London or even US advisers or investment banks to connect with businesses of interest.”

Says Pugh: “Investors across the UK are having to get out into the markets they want to invest in with a view to finding and originating deals directly. But more people talking about investment helps raise everyone’s ambitions. If that leads to additional deals getting done in Scotland and more companies starting, that’s a good thing.”