Growth economy companies in the Midlands are more optimistic about 2021 than other regions

Photo shows: Purity Brewery in Warwickshire has received BGF investment
PURITY BREWING & BGF

New research released today by BGF (Business Growth Fund) – the UK’s most active investor – has revealed that the Midlands is the most ambitious region in the UK.

Of the 75 companies interviewed in the region – as part of a survey of 532 UK companies carried out by independent research company Delineate – 89% say they remain motivated to grow in 2021. This makes the Midlands the most ambitious region in the UK compared to the national figure of 75%. Business leaders in the region are also more confident about staffing levels, with a third anticipating increasing employee numbers over the next 12 months.

But the pandemic has created significant barriers to growth for over half (58%) of South West respondents, with operational risk highlighted as the primary concern around future growth.

The pandemic has also changed how these growth economy companies are operating – for good. Six in 10 companies said that the pandemic has triggered permanent changes to their business models. 44% have invested in digital infrastructure and 27% have entered new sectors.

Growth economy companies are businesses which have revenues between £2.5m and £100m – the majority are fast-growing and profitable, with total turnover rising 4% a year on average (between 2013-18), compared with average GDP growth of 2% a year over the same period. There are more than 21,000 growth economy companies in the UK, according to research undertaken by PwC for BGF.

Looking ahead to 2021, nearly three quarters of Midlands growth economy businesses stated that they are in financially stable enough to pursue growth. However, only 27% would have no requirement for further funding over the next 12 months – indicating that growth would be mostly contingent on new investment.

There are more than 21,000 growth economy companies in the UK, according to research undertaken by PwC for BGF. 16% of these businesses are based in the Midlands. Growth economy companies have revenues between £2.5m and £100m – the majority are fast-growing and profitable, with total turnover rising 4% a year on average (between 2013-18), compared with average GDP growth of 2% a year over the same period.

Overall, the use of external funding has been prevalent throughout the pandemic with 80% of companies in the region indicating they had taken on some form of funding since March. The highest proportion of funding accessed through the pandemic was the furlough scheme (44%), followed by the Coronavirus Business Interruption Loan Scheme (CBILS) loan (37%). 27% had made a personal investment in their business and 45% will be looking to de-risk their personal investments in the business in the next 12 months.

Private equity has been a go-to source of funding for nearly a fifth of businesses (19%) in the last year – with a strengthened balance sheet (51%) and access to additional business and strategic support (51%) cited as the primary benefits of equity finance.

Growth economy companies are of the view that targeted investments of between £1m and £5m (27%) and £5m-£10m (27%) would have the greatest impact on the growth trajectory of their business.

Despite an overall positive picture in the region, 60% of Midlands businesses feel that morale, at some point, has been negatively affected by the pandemic. However, there has been little day-to-day impact on how these companies operate – 68% reported that their teams have worked as effectively and 61% feel that the company culture has strengthened over this time.

Gurinder Sunner, head of BGF in the Midlands, said: “Growth economy businesses in the Midlands have responded positively and with resilience to the challenges of 2020.  As well as being the most upbeat about growth and opportunities in 2021, they are more likely than businesses elsewhere to have invested in digital infrastructure and plan to create jobs and grow headcount in 2021.

“Business leaders in the region are also looking to de-risk and have plans to reduce their personal investment into the business in 2021, signalling the potential for strong levels of deal activity from businesses in the region’s growth economy.”

Andy Gregory, head of investments, UK & Ireland, BGF, said: “The research suggests that despite the obvious headwinds, growth economy companies have demonstrated high levels of resilience during the pandemic. Importantly, they appear to be thinking ahead to the next 12 months, working to reposition and refuel their companies to pursue growth. As businesses look to either enter new markets or refocus their operations, closing any skills gaps and bolstering their senior leadership teams will be critical.”

The research took place in October and November 2020. It comprised of interviews with 532 respondents (75 Midlands businesses) who identified as CEOs, board directors, COOs or CFOs, and owners or partners of growth economy businesses. Respondents are spread across the UK, with a turnover between £2m and £150m and between 20 and 499 employees.