BGF expected to rival dealmakers

The government-backed Business Growth Fund (BGF) is expected to bring about direct competition with private equity firms, new findings show.

Of 100 private equity executives surveyed 37 per cent say the new investment fund will make deal-making more difficult, while London remained the area where the industry expects to be active most (see Table below), according to the latest Private Equity Barometer published by accountancy firm Grant Thornton.

Private equity regional preferences

London South North Midlands Anglia Scotland
Where PE expects to be active 91% 77% 73% 70% 53% 50%
Where they have offices 96% 20% 34% 22% 3% 13%
Where they plan to have offices 0% 1% 0% 0% 0% 0%
Source: Grant Thornton

Officially launched in October 2010 to bring some much needed stimulus to UK businesses, the BGF is set to provide up to £2.5 billion for investments, with backing for the programme coming from some of the largest banks in the country.

In October the fund made its first committment of capital through a £4.2 million minority stake deal in Benefax, a business which provides online employee reward and benefit schemes.

Mo Merali, head of private equity at Grant Thornton, says that UK private equity firms need to ‘seriously’ consider how they intend to tackle the regional markets if they want to compete for deals with the likes of Lloyds Development Capital (LDC) and the Business Growth Fund.

‘More than half of our respondents expect to be active in regions outside of London, however very few are prepared to open offices there,’ Merali adds.

‘Meanwhile, it is no coincidence that LDC, with its strong regional office network, managed to close eight buyouts in the year to date. Moreover, the BGF is in the process of establishing its local presence around the country.’

The survey finds that 73 per cent of executives surveyed expect to be active in the north of England in the next six months. However 66 per cent have no plans to run an office in the region.

Merali comments: ‘Having people on the ground would dramatically improve their chances of generating proprietary deal flow outside London. Just being in a region means that you pick up local intelligence on interesting companies.’

Scotland is one area which Merali says can expect a ‘fair share’ of commuting private equity professionals, despite the fact that 87 per cent of those questioned admit to not having an office in the area, and do not plan to launch one in the future.

For new investments the highest EBITDA multiples are expected to be in high technology and financial services sectors.

‘These broad sector preferences certainly tally with our experience in some of the regions we operate in, where a growing range of potential bidders are showing an interest in related sub-sectors like precision engineering into defence, nuclear and aerospace industry, the waste and environmental area plus technology,’ Merali says.

Todd Cardy

Todd Cardy

Todd was Editor of between 2010 and 2011 as well as being responsible for publishing our digital and printed magazines focusing on private equity and venture capital.

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Business Growth Fund