Equity deal activity involving smaller businesses in Scotland picked up during the first half of 2024, one of only two parts of the UK to experience a year-on-year increase after a difficult 2023, according to new research from the British Business Bank.
The Bank’s annual Nations & Regions Tracker found that Scotland saw 6% growth in the number of equity deals involving smaller businesses – only the North East of England also saw an increase on the first half of 2023, at 7%.
This follows a year of decline in equity activity for Scotland, where deals fell by -21% and investment value by -50% between 2022 and 2023, broadly in line with the UK trend (-25% and -48% respectively).
The UK, as a whole, recorded an average fall of 15% in transactions during the first six months of this year relative to H1 2023 – though, there were signs of stabilisation.
Scotland outperformed all other parts of the UK outside London between 2021 and 2023 when deal activity is adjusted for the size of the nation’s high-growth enterprise population.
There were 0.33 transactions per high growth business, well ahead of the North East’s 0.21 in third and the UK average of 0.24. The average deal value in Scotland was £1 million – behind only London and the East of England.
There was a more mixed picture when it came to use of external finance. Borrowing intentions among smaller businesses in Scotland saw a modest improvement – with the proportion of smaller businesses planning to borrow or renew rising to 11% (from 7% in 2022) and an increase in the number of loans and overdrafts secured.
However, Scottish smaller businesses were also the least optimistic about obtaining finance, with just 52% confident in their skills and ability to do so, against a UK average of 60%. The British Business Bank established its £150 million Investment Fund for Scotland during 2023 to address barriers to finance for smaller businesses across the country.
Concerns about economic uncertainty remained prevalent last year, with 62% of smaller businesses in Scotland – broadly in line with the UK – feeling the trading environment offered more threats than opportunities.
The share of respondents that reported being affected by cost increases was above average at 81%, compared to 76% for the UK as a whole.
Susan Nightingale, Director, UK Network, Devolved Nations at the British Business Bank, said: “It is encouraging to see equity deal activity recover in Scotland, with an increase in the number of smaller businesses using it to raise funding in the first half of 2024.
“Last year may have seen a sharp drop on the pandemic years, but it was still very high by historic standards. It’s testament to the resilience of Scotland’s innovation clusters that high-growth businesses have continued to raise finance throughout a difficult period for markets.
“We have already seen the evidence of that in the first year of our Investment Fund for Scotland. High-growth potential companies, such as Carcinotech and Calcivis, have used equity to put their plans for growth into action and we would encourage more businesses looking to do likewise, wherever they are based in Scotland and whatever sector they are in, to explore what the fund has to offer.
“Although there is still a degree of macroeconomic uncertainty and a feeling among smaller businesses in Scotland that they may not obtain finance, there are positive signs that lending conditions are improving.”
