Key to UK mid-market growth is overseas

GE Capital's The Mighty Middle report unearthed some surprising yet encouraging figures highlighting the importance of the country's mid-market community. It found that UK mid-market businesses (companies with annual turnovers between €20m and €1bn, of which there are an estimated 27,850) make up 1.67% of all private sector businesses but account for 34.86% of private sector revenues and employ 39% of the UK private sector workforce. Impressively, this key group generates over a third of the UK's GDP.

The research also highlighted UK ‘growth champions', companies that have achieved sales growth of 10% or more in the last year, of which 17% of UK mid-market companies fell into this prosperous category. According to Dan Matthews, executive director in GE's EMEA leveraged finance team: "We found companies in that group were very externally-facing and more export orientated in an environment where businesses are typically retrenching to domestic markets."

Matthews's sentiment ties in neatly with the British Chambers of Commerce's (BCC) Quarterly Economic Survey (QES), which found that in the second quarter of this year, services company exports reached an all-time high, hitting +35%. By way of comparison, in Q2 2011 this figure stood at +18% and in Q2 2009 it had dropped to -10%. "The strength of the export balances, particularly in the service sector, confirms the existence of huge untapped potential that must be unleashed," believes BCC chief economist David Kern.

Howard Sharp, head of EMEA origination and sponsor coverage at GE is positive on how the renewed sense of optimism and resilience in UK mid-market companies can benefit private equity. "A good number of these companies are privately held, which offers good scope for private equity investments in the UK," he notes. Sharp believes UK companies are increasingly taking advantage of the chance to export into growing markets. "Through the companies that we work with, we see a growing ability to sell into say China or Brazil. This isn't for all businesses, but for many there is an opportunity and it is clear people are getting on planes and selling into new markets."

With fast growing companies on home turf the asset class should be feeling optimistic about new investment opportunities. The flip side of the coin is how the changing environment affects older deals. "We've seen a real focus on targeting growth through exports over the last 12 to 18 months. This means planning and accounting for that type of growth is crucial when making financial arrangements at the point of investment. Older private equity deals that perhaps overlooked the importance of expansion into new geographical markets may have been hindered if this was not contemplated at the time," explains Matthews.

Taking advantage of growth overseas, especially in developing economies, is certainly not a new concept for private equity practitioners. What is compelling, though, was that GE Capital survey respondents specified a lack of local knowledge or contacts in new markets as a key barrier to exporting. If we couple that sentiment with only 15% of those surveyed citing access to private equity as a concern, compared with 43% worried about accessing bank finance, it is clear the asset class must promote its ability to aid overseas growth. For houses in desperate need to put dry powder to work it has never been more crucial to advocate the industry's success and expertise in accessing foreign markets.

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• Topics
• UK / Ireland
• GE Capital
• United Kingdom