VCT MBOs must continue, says ICAEW

Kimberly Romaine
29 February 2012

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Proposed changes may strip VCTsт of their ability to back buyouts т but this would have dire consequences, according to ICAEWтs CF head. Kimberly Romaine reports.

It is that time of year when VCTs must face their perennial challenge of hanging on to their investment rights. Last year, the rules reverted to more generous terms allowing investment into larger, more profitable businesses. Now there are fears that buyouts may be axed from the list of permissible deals for VCTs, as they may infringe upon State Aid rules as set out in Brussels. This would not only severely restrict the activity of many VCTs, but also hamper the growth of many UK SMEs, according to ICAEW's Head of Corporate Finance, David Petrie.

"A lot of businesses run out of cash as they develop. Often, the original investors, who may be friends or family of the founder, investing with the benefit of EIS tax relief, or perhaps more formal business angels, don't have the inclination or the cash to keep investing," explains Petrie.

He continues: "The next level of investment - probably from VCT funds that would intimate a change of shareholder base and provide much-needed expertise - is quite simply not a true buyout. It is therefore unfortunate that it is deemed so under the terms of the draft Finance Act 2012. We have been actively seeking to reverse this approach, as many of our members tell us it would have dire consequences for the level of investment in fast-growing SMEs. Support from a VCT is a natural next step in many businesses' development and if that opportunity is taken away, many of these companies will struggle, or even fold altogether. Surely that is not the intention."

Next Tuesday, unquote" editor-in-chief Kimberly Romaine will be chairing a breakfast seminar hosted by the Corporate Finance Faculty looking at investing in UK SMEs.

The seminar, "What works for investors in growth companies (and what doesn't)" will bring together private equity players, entrepreneurs, corporate financiers and MPs to discuss the issue. Speakers include Advent Venture Partners' Mike Chalfen; Business Growth Fund's Stephen Welton and Summit Group's Kit Hunter Gordon. It will take place at Chartered Accountants' Hall in London on the morning of Tuesday 6th March 2012. More information can be found here.