Private equity has been in the firing line the last few months. Some of the country’s biggest press outlets have attacked what they see to be the ‘exploitation’ of small and legacy UK businesses by large, aggressive international firms. It has proven to be an effective narrative, albeit one driven by passion as opposed to business fundamentals.
There are a few reasons why private equity deals, namely M&A deals, have been targeted. The first has to do with the volume of deals that have been completed. According to Rickitt Mitchell’s Buy and Build Barometer, the number of acquisitions made by private equity backed businesses in the UK hit record levels in Q1 2021 – the barometer recorded 168 completed transactions in the opening three months of the year.
The reason why this has generated controversy is due the context in which these deals are happening. Across all sectors, the COVID-19 pandemic and cyclical lockdowns have posed challenges for businesses. It is estimated that around 25% of businesses have closed or temporarily paused trading in the UK because of the pandemic.
The Daily Mail has positioned this private equity takeovers as ‘predatory’ actions being pursued by ‘fat cat’ private equity professionals, taking advantage of struggling companies in order to turn a quick profit instead of nurturing their long-term growth. The paper has called for greater regulation and an active effort by the government to ensure private equity firms are not taking advantage of British business.
The media campaign against private equity has in part been so effective because it has generalised a complex sector.
In reality, private equity has an important role to play in supporting the scale-up and growth of innovative SMEs across the country.
Equity finance investments have proven key to funding innovation and growth in key industries and sectors. For example, the British Business Bank recorded that equity investment into UK technology firms in 2019 increased year-on-year by 27% to total £4 billion. This is part of the reason why the UK is regarded as Europe’s leading scale-up and startup nation, attracting entrepreneurial talent and the investors willing to back companies set to disrupt their respective industries.
The above example offers a different perspective on private equity as a key an enabler of SME development and growth. What’s more, in these instances, private equity also ensures companies that are receiving the investment can also consult with their investors, providing them with strategic counsel and advice.
Finally, there are also plenty of examples of UK private equity firms supporting scaling businesses. If we look beyond the capital, companies like Praetura Group are doing fantastic work by facilitating investment into high-growth firms based in the North of England. Through this focus, it ensures regions outside of London and the Southeast of England are established as thriving hubs for innovative firms. If we take a step back, this will only promote economic productivity and growth.
The key here is ensuring that these types of stories are effectively told. Private equity firms must be communicating to investors, business owners and the wider public about their work in fuelling entrepreneurship and offering the financial means needed for companies to growth and evolve.
That is not to say that private equity does not have its challenges. This is to be expected given the complexity of the sector. Nonetheless, a more balanced narrative needs to be presented, and this can only be achieved if private equity firms champion the work they do and provide insight on how they are helping British businesses.
If your firm is looking for support communicating its key messages and attracting the right sort of media attention, get in touch today to discuss how our team of experts could help.