FINANCING MID-SIZED FIRMS
For example, we normally see around a fifth of each list having reached a turnover of more than £10million whilst making a significant contribution to employment growth at the same time. However, there has been concern by various commentators, that medium-sized firms have not historically had the same level of support and attention as their smaller counterparts.
This is unfortunate as the CBI has recognised that mid-sized firms can be the engines that unlock the potential of the economy. With just six per cent of medium-sized businesses being responsible for sixty per cent of all the jobs created by the sector, there is certainly scope for greater growth within mid-sized firms. Indeed, if more mid-sized firms could reach their potential, it is estimated that as much as an extra £50bn would be added to the economy by 2020.
To achieve this, mid-sized firms must be encouraged to scale up their own ambitions although they should be supported in doing this through specific access to higher levels of long term funding, especially in the form of equity finance.
Given this conclusion, many welcomed the move three years ago to recognise the demand for finance from this critical group of companies through the creation of the Business Growth Fund (BGF). This was established as an independent investment company with £2.5 billion to invest in fast-growing smaller and medium sized UK businesses that need long-term capital to drive their future success.
Funded by five of the UK’s main banking groups, BGF invests £2m to £10m in return for a minority equity stake in established UK companies with sales of around £5-£100 million that have a strong growth trajectory. This investment can be used as development capital to fund growth that is organic, achieved via acquisition, or both. In addition, BGF will also work in partnership with its investee companies to ensure they benefit from the funder’s expertise and guidance on strategic and operational issues plus access to a significant UK-wide network of contacts.
Therefore, BGF is an innovation that many welcomed at the time and whilst it does not have a base in Wales, it has offices in Bristol and Manchester that look after potential Welsh investments. Given this, how has BGF performed to date in Wales?
BGF’s own research shows that there are around 500 Welsh mid-sized firms with a turnover of between £2.5m and £100m. Of these, it has identified 85 businesses that have grown by at least 33 per cent in the last three years. Yet to date, it has made only one investment to date in Wales, namely a £5.4m investment of growth capital in Swanbridge Hire and Sales (SHS), a specialist provider of high specification industrial scaffolding services, based in Barry.
Compare this to Scotland, where BGF has made ten investments with five of these being made in the last three months.
I am sure many will be puzzled by the track record of BGF in Wales especially given the fact that there are mid-sized companies, as evidenced by the Fast Growth 50 every year, that require funding that is not necessarily available from the banks. Indeed, it is surprising that despite the funding available from BGF to potentially support Welsh firms, Finance Wales is now in the process of examining whether it should establish its own fund to support mid-sized and larger firms in Wales although this will probably supply both debt and equity funding to businesses.
Whilst interest by the public sector in supporting mid-sized firms is to be welcomed, I would hope that this will now spur the BGF to re-examine its strategy in Wales and to look to start investing into those ambitious growth firms we see every year on the Wales Fast Growth 50 list. Certainly, as the CBI noted, if we can get the right support to mid-sized firms in regions such as Wales and ensure that businesses get access to the finance they need to grow, then it could have a significant impact on the economy in terms of both wealth creation and employment.