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Industry fears confirmed as BGF outbids NVM

Susannah Birkwood
10 August 2011

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The Business Growth Fund’s outbidding of private investor NVM appears to justify market concern that the vehicle constitutes unfair competition to smaller PE houses.

Britain's Business Growth Fund (BGF) has outbid VCT manager NVM Private Equity in its attempt to invest in a Southampton-based company.

Though the deal has not yet closed, this move appears to confirm the fears of critics who claim that the fund represents significant competition to VCTs and private equity firms at the smaller end of the market.

Launched in May, the intended role of the BGF is to fill the "equity gap" faced by UK start-ups, and thus boost the economy through innovation and job creation. The £2.5bn fund counts five banks among its investors and aims to invest £2-10m per deal in UK businesses with revenues of £10m to £100m.

The problem for firms such as NVM, however, is that this government-backed vehicle is grazing on exactly the same pastures as them - despite April's Budget having announced some positive changes for VCTs.

While NVM declined to comment on this specific deal, company chairman Tim Levett said in May that he expects the BGF to compete "quite strongly" with VCT managers. "The amount of money under management in VCTs is currently around £2bn, of which about £600-700m is in liquid form," he said. "That money is looking for a home and the BGF is coming as well."

Meanwhile, David Barbour of Fleming Family & Partners Private Equity said the BGF would have better served the market if it had taken the form of a mezzanine fund. "It also remains to be seen just how much assistance it can give its portfolio companies when for the first couple of years they are going to be focused on trying to invest a very large amount of money," he added.

Senior industry figures who have joined the BGF in recent months include former 3i Birmingham head Richard Bishop, Alistair Brew from Octopus Ventures, Audrey Baxter, of Baxters Food Group, Stephen Murphy from Virgin, Neil Johnson of Umeco, Hornby and Motability Finance, and John Burgess of BC Partners.

Only last week, former Channel 4 chairman and serial entrepreneur Luke Johnson told unquote" that the BGF is operating in a "very crowded space" with "at least 50 providers of that sort of capital right here in the UK".