What Midlands businesses need to know if they’re thinking about new equity investment
Gurinder Sunner, Head of BGF in the Midlands speaks to Andrew Mair, BDO audit partner and private equity leader in the Midlands.
The Midlands business scene is ripe with opportunity after an extraordinary 18 months – so says Gurinder Sunner from BGF. The region is alive with innovation and increasing numbers of businesses are turning to investors to help take their companies to the next level. So, what should would-be business owners be thinking about if they’re considering new equity investment?
It’s all about clarity
“Clarity is key,” explains Gurinder. “My advice for business owners considering courting investors is to give their businesses a really thorough critique to prepare for the process of doing a deal.
“There’s nothing wrong with having exploratory conversations with PE houses and investors, but it’s so important that you have clarity over what you want to achieve from those chats. Asking open questions and properly listening to the answers is a great way to hone your pitch,” he continued.
And clarity works both ways. For BGF, the onset of the pandemic created the need to embrace remote deal-making and deals were even momentarily paused while businesses took stock. “Our initial absolute focus was on our portfolio and to really understand the changes before we made any new investments,” explained Gurinder. “What this meant in practice was that we got closer to our portfolio’s management teams than ever before and offered support and insight wherever we could as we all navigated new challenges daily. As a result, our relationships and deep understanding of each business have never been better.”
Any dealmaker knows that a quality management team is critical. BDO’s Andrew Mair said: “As a business owner, balancing strategic planning and being on top of the detail in a growing business is tough – but it’s vital to have a grasp of both if you’re considering going down the PE route as you’ll need to be able to articulate your business’ strengths, your vision and how it will be delivered whilst also keeping on top of the “day job” of running the business.”
Gurinder agrees. “A strong management team that really knows its business and its “USPs” remains the single most appealing factor when I’m looking at an investment opportunity.”
A sector perspective
“Tech is a good example of where the best business ideas don’t always win,” Gurinder said. “We have a growing tech scene in the Midlands and there’s plenty of scope for investment, but the ones that will win are those who are able to develop cutting-edge technology and take it to market and make it work commercially. In other words, it is often the company that sells its tech the best that seals the deal.”
The Midlands has a rich history in sectors such as engineering, automotive and aerospace, and has a wealth of talent in these areas as a result. This means that innovative businesses in these sectors are likely to pique the interest of an investor, says Gurinder, because the chances are that there’s an abundance of knowledge and insight in the boardroom. The region has an opportunity to create a sector powerhouse on the back of this heritage and the skills here – we could lead the future of transport and mobility innovation. The sector would benefit from Government intervention – whether incentives or funding - to support these ambitions, which could also work towards the levelling-up agenda.
We also see plenty of opportunity in green tech, D2C consumer brands, healthcare, life sciences, and tech which supports digital transformation. Indeed, BGF has enjoyed a record year for new investments and exits as the region shows resilience in the face of the previous 18 months’ challenges.
Consider plans for growth
“Human capital is key to growth,” says Gurinder. “Getting the right people in place and harnessing their experience is essential. Owners with a desire to scale up need to build a well-rounded board and senior management team. This allows a business owner the benefit of specialist input on key decisions and will help attract and engage employees to build a culture that supports growth.
“Non-executive directors (“NEDs”) provide a vital role in board development, bringing experienced voices from other sectors. BGF’s Talent Network acts to pair over 6,000 NEDs with our portfolio companies. Proximity to the business is a bonus but it will never trump expertise and experience. The region is pretty well served for good NEDs – 60% of our network are based outside London and the South East. This is in parallel with 70% of investments being made in the regions outside London and the South East. We expect both of these percentages to increase in years to come.
One of the key changes to business operations in the last year has been remote working. As restrictions are lifted and businesses start to work out how best to adapt to the “new ways of working”, the need to strike the right balance will be incredibly important.
Andrew says: “NEDs are a good example of a role that, whilst on the face of it could be performed remotely, in reality needs in-person contact. It’s very difficult to get under the skin of a business as a non-exec if you don’t see the business in operation and have face-to-face meetings with the people on the ground. A good NED will get to know the business, its people and culture – and it’s practically impossible to do that remotely.”
The region benefits from a wealth of entrepreneurial businesses and plenty of untapped potential. “The Midlands needs to decide how it should and can push forward with ambitions to establish itself as a genuine tech hub that can compete with London or Manchester. To do that, we need to also grow the pool of tech-focused advisers and intermediaries to create an effective and sustainable ecosystem.
“The capital is here to invest, and we believe in the talent and tenacity of the region’s business owners. We’ve already seen remarkable success stories from our own portfolio with a flurry of successful exits in the past 12 months. Add that to the high-growth Midlands companies like Gymshark or Grenade creating global megabrands in recent years and there’s every reason to be optimistic about the future for the region.”
For more information on our private equity service offering please contact Andrew Mair, Partner, Business Assurance [email protected].