The British Business Bank (BBB) has said there was £3.5bn of investment into UK smaller businesses by private equity sources in 2015, as global investors sought a home for cash liquidity, including the UK’s leasing and asset finance businesses.
In the BBB’s report, called the Equity Investment Tracker, the £3.5bn investment level was cited as a 58% increase on 2014’s funding figure.
Overall, the annual number of equity investment deals and investment amounts have continued to increase since 2011 and reached 1,270 equity deals in 2015, a 5% year-on-year increase.
There was also a 71% increase in equity deals above £10m compared to 2014, with the ten largest investments forming 25% of the total equity investment for small businesses.
The overall positive picture presented by the 2015 annual figures is tempered by a slowdown in the final quarter of 2015, offsetting a strong performance in Q3 2015. The number of investments in Q4 2015 was 16% lower than Q1 2015. Despite this, quarterly investment totals in 2015 remain well above the final quarter figure for 2014.
In addition, external equity finance is still only used by a very small percentage of smaller businesses, with just 1% of SMEs overall having used some form of equity finance in the last three years.
According to the tracker, there remains a concentration of equity investments in London and the South East.
London has seen the largest year-on-year growth in both deal numbers and the total amount invested. The number of equity deals grew by 17% in 2015, with the total amount invested increasing by 100%. In context, London has the highest share of high-¬growth enterprises (21%) in the UK, but its share of the total number of equity deals in 2015 was much higher at 47%.
Of further concern, whilst the value of deals outside London rose by 23%, the number of deals declined by 4%. In addition, no region outside of London has seen continuous year-on-year increases in the total amount of annual investment between 2011 and 2015.
Looking at specific regions in more detail shows the issues more clearly. 10% of deals by value (18% by volume) went to companies in Northern Regions and 5% of deals by value (6% by volume) went to companies located in the Midlands between 2011 and 2015. This suggests equity deals are underrepresented in the North, and even more so in the Midlands, when compared to the number of private sector enterprises located in these areas. For instance, 19% of all businesses in the United Kingdom are located in the North and 14% are located in the Midlands at the start of 2015.