UK private equity's northern awakening

The considerable growth northern England's private equity community has experienced in recent years was underscored in the first quarter of 2016.

In February, Dutch GP Waterland Private Equity Investments announced it was to open its first UK office in Manchester, and the British Business Bank launched its Northern Powerhouse Investment Fund (NPIF), appointing Maven Capital Partners to manage its £57.5m vehicle for the north-west. In March, Lyceum Capital signalled its intention to boost its activity in the north, appointing former Montagu Private Equity's Manchester-based director, Anthony Greensmith.

According to unquote" data, the north has historically accounted for just 7% of Lyceum's activity since its inception 18 years ago. However, the GP said the new appointment was motivated by strong growth indicators in the area.

Furthermore, LP appetite for northern English investments was laid bare when regional investor NorthEdge Capital closed its 2016-vintage second fund on £300m – £75m higher than its maiden vehicle. Given the continued presence of other stalwarts such as YFM Equity Partners and LDC, it is clear there is a healthy investment ecosystem in the region.

Speaking recently to unquote", NorthEdge managing partner Grant Berry said: "Deal value and deal volume across the north for the lower-mid-market is substantial – when compared to European geographies it stacks up as being about half of the Nordic market, twice the size of Spain and two thirds that of France or Germany."

Innovation is strong and alive in the north, and with NPIF, we're looking to invest in good companies, to generate returns, but also to attract other co-investors" – Grant Peggie, British Business Bank

However, though there may be a significant existing ecosystem in place, the number of initiatives and new players within the region suggests investors are increasing their focus on the north. It could be argued this is partly a consequence of the maturity and growing competition of the private equity market in London and the south-east.

"In particular, Leeds and Manchester are outperforming London, in terms of having high-growth companies," says Grant Peggie, director of venture capital solutions at the British Business Bank. "There is less competition in the private equity market in the north compared to London and the south-east, where there are a lot of fund managers chasing companies. There are great universities up here, in terms of science and innovation, so people are starting to look at the area, what the infrastructure is like and what the community is like."

Laying the tracks for growth
Additionally, successive UK governments appear to have acted in recent years on public perception that the south-east of England receives a disproportionately high level of support compared to other regions. In particular, the north of England is in line for significant infrastructure spending with projects such as the High Speed Two (HS2) rail connection between Leeds, Manchester and London, and the proposed High Speed Three route between Liverpool and Newcastle, which will link with HS2.

"That's part of the reason for the Northern Powerhouse Investment Fund," says Maven's Ryan Bevington, fund manager for NPIF Maven Equity Finance in the north-west. "Ten local enterprise partnerships are coming together in recognition that there is a lot of infrastructure investment and, if we get the investment into businesses right, they will be the employers of tomorrow."

Furthermore, as Bevington argues, the government is aiming to complement existing PE and VC investors in the north, partly as a result of the often cited north/south divide, which, if anything, has grown since the financial crisis of 2008/09.

Yet British Business Bank's Peggie says the potential investment case for backing northern companies is far stronger than the political argument for wealth redistribution. "The industrial base is changing. We're not going to go back to being a coal-mining economy, but there are industries that are replacing it – in Sheffield you have seen advances in steel technology and composite materials that have attracted investments from Boeing, McLaren and Rolls Royce, for example. Innovation is strong and alive in the north, and with NPIF, we're looking to invest in good companies, to generate returns, but also to attract other co-investors."

While northern-England-focused fund managers are not new, there are signs the region is well positioned for an increase in private equity activity in the coming years.

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