Recent turbulent macroeconomic conditions have brought with them
concerns for small and medium-sized enterprises (SMEs), which account for 99% of companies in the UK (according to the Federation of Small Businesses). But this week, Lyceum Capital and Cass Business School published findings that reveal the sector is enjoying a 12% increase in transactions on last year and that private equity investors’ appetite for investing in SMEs is at a five-year high.
A seller’s marketRebecca Burn-Callander, writing for
The Telegraph, says “investment activity is now accelerating”, with private equity investors increasingly moving money into the small business sector.
The study by Lyceum Capital and Cass Business School found that the volume of transactions rose 12% over the year, to reach 87 investments amounting to £3.43bn.
Burn-Callender notes that companies in the business services and industrial sectors were the big winners in 2015, attracting the largest number of private equity investors.
However, she concedes that deal volumes are still a long way off their pre-recession highs – down by 30–40%.
Burn-Callender quotes Andrew Aylwin, Partner at Lyceum Capital: “It’s a seller’s market at the moment with private firms looking to deploy some of the largest cash piles in years.
“In a global economic market plagued with uncertainties … it is encouraging to see that the outlook for entrepreneurs and medium-sized companies has never looked stronger. We expect these businesses to continue to attract increased amounts of investment and grow into industry champions over the next 12 months.”
The Telegraph opinion
Seeing a surgeAcross the Atlantic, Canadian SMEs are also relishing a boost in private equity investment, though the benefits are mainly being felt in Canadian overseas investments.
Euan Rocha and Matt Scuffham, writing for
Reuters, say these “surged to record levels in 2015 on the back of some major buyouts by Canadian pension funds across a wide range of sectors”.
Citing Reuters data, the article spouts some impressive figures: “Canadian private equity investments abroad jumped to C$159.2bn ($114bn) in 2015, more than the combined value of all such deals struck by Canadian private equity firms in the five years prior.”
Dougal Macdonald, Head of Morgan Stanley in Canada, is quoted, explaining why domestic private equity investment – while up by 11% – is lagging behind overseas investment: “Part of the challenge for a Canadian-based private equity platform is that there just aren't a lot of opportunities in Canada.
“With the sheer size of some of these funds, whether it's the Canada Pension Plan Investment Board, Teachers or Onex, you really have to look outside Canada for opportunities. We expect this trend to continue.”
John Ruffalo, Head of OMERS Ventures, takes a more muted view: “You're getting lots of pundits who think that 2016 might actually see a slowdown of venture financing. Certainly the hot companies may be unaffected, but a lot of the others might see a far more difficult year.“
Reuters article
Tremendous growthMoving the focus away from private equity finance,
AltFi’s Ryan Weeks considers the role that crowdfunding and other alternative financing has played in the resilience of SMEs throughout tough economic conditions.
Weeks draws attention to another report, this time the British Business Bank’s
Small business finance markets report 2015/16, which highlights “the tremendous growth of the business lending segment of the alternative finance space – which ballooned by 75% to £1.26bn in 2015.”
Weeks suggests that the rise comes on the back of a return to equity financing and SME owners simply becoming more aware of alternative financing options.
He notes: “49% of the small businesses surveyed by the British Business Bank in 2015 had heard of crowdfunding, as opposed to just 13% in 2012.”
But Weeks draws his own conclusion from the bank’s findings. “Broader market awareness is still lacking, with a large number of SMEs having heard of only one alternative finance provider,” he says. “Although, for instance, 40% of survey respondents were aware of peer-to-peer lending, 19% were familiar with only one particular platform.”
Ending on a mixed note, Weeks says that the market is growing fast, and is “beginning to make a mark on the UK economy,” but “a great deal of work still needs to be done.”
AltFi report
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