Peter Curtain reports on a recent trip.
We’ve been catching up with some advisers on a visit to the Northwest of England and one thing is clear – investors are fighting hard for the best deals.
As one professional told us: “There’s massive demand for quality assets among private equity investors. They have full-time teams scouting around the country, talking to potential vendors.”
A number of factors are at work. First, an obvious point perhaps, but there are some very able business people in the North of England, who know how to build an enterprise that’s fit to last.
Second, the UK economy has been performing well in many sectors since the banking crisis. There may be uncertainty about the future – with the Brexit vote, UK and international political woes and wider credit-focused economic fears all playing a part. Yet good private companies have grown, establishing strong positions in traditional and nascent markets. That appeals to long-term investors.
A third factor driving demand could be perceived poor returns in public equity markets, combined with a drop in the number and value of IPOs and a preference for keeping a low profile compared to ownership of a listed company.
Figures for private equity deals are often hard to establish, with a three-year wait for clarity on activity levels, but the current high demand is shown by the due diligence and old-fashioned schmoozing investors are putting in. This makes sense – while some founders will always take the highest bid, others want to ensure what they’ve built stays in good hands to the benefit of stakeholders including employees, even if they take away less cash.
A key objective for PE investors is to get on the vendor’s shortlist and this can involve a long courtship. It provides prospective buyers with an opportunity not only to establish good relations but also to identify problems – while gaining a better understanding of the business and how it might be improved by new owners.
This type of activity is firmly established in the Northwest, so that Manchester is now a substantial European private equity hub. There are numerous active financial houses, with origins variously in large institutions, private ownership, publicly funded enterprise bodies and university departments.
It says much that the British Private Equity & Venture Capital Association has a local director, Richard Young. “Private Equity in Manchester has been a huge success,” he told the Manchester Evening News last July. “The number of firms … and the amount they are investing in the region have grown massively over the last 20 years. Manchester now has a vibrant community which can offer competitive solutions in all but the very largest deals.”
Investment activity in the North could have big implications for the rest of the country and London especially, given the capital’s high property, recruitment and commuting costs and the growing attractions of life elsewhere.
“A small business looking for wealthy backers could be better off in Manchester than London, if it is seeking investors geared towards start-ups,” wrote Andrew Bounds in the Financial Times in January.
“In Northwest England, … private equity groups are more likely to invest in companies still run by their founders, according to industry research. Manchester is rare for a regional UK city in having a cluster of funds based there. It also has the regional offices of several London-based firms…”
HS2, Northern Powerhouse, Brexit or otherwise, the Northwest looks a safe bet for growing businesses for a long time to come.