Private equity needs to get out of London

Some people need to get out of London more often. I’m talking about private equity guys – they tend to be guys – and I’m mentioning this because of a new report which showed that companies in and around the capital receive three quarters of all equity investments in the UK.

Research from Leeds University and Imperial College London showed 75 per cent of total investment value, including venture capital, private equity firms, crowd funders and local and national government bodies, went into firms in London, the South East and the East of England, including Cambridge. The report revealed a UK equity gap – the shortfall between potential demand and supply of finance – of £10.5bn in 2017, including £565m in Yorkshire and the Humber. The authors point out that while demand for investment is smaller outside London, the supply is much more restricted.

Professor Nick Wilson, one of the authors, said: “Funding continues to be concentrated in London and the South East, which is detrimental to efforts to rebalance the economy. What is particularly concerning is that the concentration of equity investment into the capital is rising – London is dominant and that dominance is further growing.”

There’s no shortage of high-growth firms in our district. In fact, Bradford is home to 48 companies defined as scale-ups. These are enterprises with average annual growth in employees or turnover greater than 20 per cent per annum over a three-year period (and with more than 10 employees at the beginning of the period).

These are just the sort of businesses favoured by private equity. They are productive, they create lots of high quality jobs, they are innovative and international, they can be found across all sectors and they tend to be diverse. In Bradford, they account for combined turnover of £1bn and together employ 8,000 people. For a district with a £10bn economy, you can see just how important their contribution is.

Our new business pipeline is considerable. Latest figures from the Centre for Entrepreneurs show 4,127 businesses were formed in the district last year. That’s 15 new start-ups every calendar working day. This represents growth of 2 per cent from 2017 and made Bradford the 10th most popular place to start a business in 2018, up from 14th the previous year. These start-ups are benefiting from business rate relief, road infrastructure, number of job vacancies, cost of commercial rent, and business survival rate, the key factors analysed by Barclays when it announced that Bradford is the best place in Britain to start a business.

Given the underlying dynamics, I have to say that London private equity is missing a trick. The industry is sitting on enormous amounts of ‘dry powder’: $2.1 trillion worldwide, according to financial information firm Preqin. This money has to be deployed somewhere and certainly there are plenty of deals to be done in our district. The Bradford-based Business Enterprise Fund, which provides finance and support for small businesses across the North, has invested £16m in 780 businesses over the last two years, including more than 200 in the Bradford area, according to CEO Stephen Waud.

Private equity is not for everyone. The industry has been criticised for being too short term in its outlook, typically holding investments for three-to-five years before seeking an exit at a multiple of its original outlay, and for loading companies with debt. And as I alluded to earlier, the industry is male-dominated – just nine per cent of senior roles are held by women – which fosters certain types of behaviours. Family ownership is often better for business. While family firms can be more conservative in outlook, they do take a longer term view.

Companies need access to external finance to achieve their growth ambitions. This is where venture capital, private equity and crowd funders come in. As the report points out, the Government needs to do more to encourage equity firms to invest in the regions. It could offer incentives to private equity firms to open offices outside London and perhaps by extending existing tax incentives schemes. Having a more ready supply of investment would build on Bradford’s business and sector strengths and help the district achieve its growth potential. My message to the PE houses and VCs funds is simple: get out of London and see what we’ve got to offer.

• Dave Baldwin is chairman of Bradford Economic Partnership and chief executive of Burnley Football Club. 

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