|BRITISH BUSINESS BANK RESEARCH SHOWS £3.5BN OF INVESTMENT INTO UK SMALLER BUSINESSES
May 25 2016.
- British Business Bank annual Equity Tracker Report highlights fourth consecutive year of growth in equity investment for smaller business
- Report highlights regional disparities and evidence of softening in the market in the latter part of 2015
- British Business Bank continues to expand its equity interventions through Northern Powerhouse and Midlands Engine regional funding programmes
British Business Bank has today published its second annual Equity Tracker Report. The report is an in-depth study investigating equity investment into UK smaller businesses in 2015, undertaken in partnership with Beauhurst, a leading UK data provider on UK high growth start-up and scale-up companies.
The report highlights the continued growth of equity investment for UK smaller businesses, demonstrates significant regional disparities and shows the sectors that are thriving. Although the long-term trend in equity investment is positive, there is evidence of softening in the market and the report suggests there is more work to do to ensure that the UK’s smaller businesses get the equity finance they need to grow.
Keith Morgan, CEO of British Business Bank, said: “Our research paints a comprehensive picture of the state of the equity finance market for smaller businesses. It identifies a step-up in equity finance provision since 2011 but, notably, wide-ranging regional disparities persist. Although there are high-growth businesses throughout the UK, it is a concern that the regions outside London, home to 79% of these businesses, attract only 53% of the equity investment.
“Our Northern Powerhouse Investment Fund and Midlands Engine Investment Fund are specifically responding to the regional challenge. In creating these regional funds, we expect to work with Growth Hubs and the private sector to help stimulate both supply and demand for growth finance and to encourage a more dynamic equity culture.
“Equity finance is a crucial component in scaling up businesses in the UK and tackling our productivity gap. The total number and value of equity deals are significantly up and continue the trend of year-on-year growth since 2011. We are proud to play a role in enabling that growth by taking part in 9% of all equity deals by value, led by our Enterprise Capital Funds programme, which combines private and public money to make equity investments in high growth businesses.”
The Market is strong, but some evidence of softening in the final quarter of 2015
Overall equity investment annual deal numbers and investment amounts have continued to increase since 2011 and reached 1,270 equity deals in 2015, a 5% year on year increase. The amount of funding was also considerably higher, increasing by 58% to a total value of £3.5bn in 2015.
There has also been a 71% increase in equity deals above £10m compared to 2014, with the ten largest investments forming 25% of the total equity investment for small businesses.
The overall positive picture presented by the 2015 annual figures is tempered by a slowdown in the final quarter of 2015 offsetting the strong performance seen in Q3 2015. The number of investments in Q4 2015 was 16% lower than Q1 2015. Despite this, quarterly investment totals in 2015 remain well above the final quarter figure for 2014.
In addition, external equity finance is still only used by a very small percentage of smaller businesses, with just 1% of SMEs overall having used some form of equity finance in last three years.
Regional disparities persist
There remains a concentration of equity investments in London and the South East. London has seen the largest year-on-year growth in both deal numbers and the total amount invested. The number of equity deals grew by 17% in 2015, with the total amount invested increasing by 100%. Putting this in context, London has the highest share of high-growth enterprises (21%) in the UK, but its share of the total number of equity deals in 2015 is much higher at 47%.
Of further concern, whilst the value of deals outside London rose by 23%, the number of deals declined by 4%. In addition, no region outside of London has seen continuous year-on-year increases in the total amount of annual investment between 2011 and 2015.
Looking at specific regions in more detail shows the issues more clearly. 10% of deals by value (18% by volume) went to companies in Northern Regions and 5% of deals by value (6% by volume) went to companies located in the Midlands between 2011 and 2015. This suggests equity deals are underrepresented in the North, and even more so in the Midlands, when compared to the number of private sector enterprises located in these areas. For instance, 19% of all businesses in the United Kingdom are located in the North and 14% are located in the Midlands at the start of 2015.
Technology continues to dominate equity investment
Reflecting the UK technology sector’s continued growth, the number of equity investments in technology / IP-based businesses has grown every year since 2011 and the amount invested in the sector has reached the highest recorded level of £1.6bn in 2015, growing 49% compared to 2014.
Life sciences and Software are the largest two technology sub-sectors. The number of deals in the Software sector reached a record high in 2015, as did the amount invested (296 deals, £659m in 2015). The number of deals grew only by 5% compared with 2014 but the amount invested grew by 45%. The number of deals in the Life sciences also reached a record high in 2015 (growing by 10%) but the amount invested grew by an even greater amount (71%).
The British Business Bank is having a clear impact
British Business Bank programmes are estimated to have supported around 6% of all equity deals representing roughly 9% of the overall invested equity amount.
The British Business Bank continues to maintain and expand its equity interventions, with the Angel Co-Fund and Enterprise Capital Funds programme, which has an investment capacity of over £600m. It also supports the establishment of funds through its VC Catalyst Fund, which has so far committed £71m to eight venture capital funds.
The newly announced £400m Northern Powerhouse Investment Fund and £250m Midland Engine Investment Fund will specifically target increasing finance availability in the North and Midlands. The need for these programmes has been further reinforced by this research.
The publication of the report follows shortly after the launch of the first £30m tranche of the Bank’s new Help to Grow programme, which is expected to support around £200m of growth loans in its first two years.
For further information visit: http://british-business-bank.co.uk/