Investors are bullish
The success of private equity is determined by two factors. The first is funding lines i.e. having a network of investors willing to pool their capital collectively to invest in a business. The second is having a strong portfolio of companies to invest in.
If we look at the first factor, the most recent figures show that sentiment towards SME investment in the lead-up to the pandemic has remained positive.
The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are two tax-efficient investment policies for UK residents looking to invest in UK companies.
According to HMRC, funding from EIS increased to £1.905 billion during the 2019/2020 financial year, up from £1.867 billion in the previous tax year. While figures from the most recent financial year will not be released until 2022, advance assurance applications in 2020/2021 look to be in healthy state, with over 3,000 applications for EIS and 2,900 applications for SEIS. This essentially reflects the number of companies that are applying to gain provisional confirmation from HMRC that an investment into their business would satisfy the EIS/SEIS requirements.
A study by one private equity firm also shows that investors look bullish. According to a survey, 44% of investors are looking to back UK-based companies over global firms, while 19% believe the pandemic has opened new investment opportunities. These are all positive signs for business of all sizes planning to consolidate and grow in the ensuing years.
The bigger picture
I have no doubt that the private equity and alternative finance sectors will receive ongoing criticism in general by public commentators over the coming months as more high-profile cases of merger and acquisitions are covered. However, this must be balanced with the realisation that private equity has a positive role to play in supporting UK business, as does debt investment and venture capital.
The UK Treasury is currently examining the impact of private equity on businesses across the country as part of a comprehensive report and I hopel that this will provide a balanced analysis and help towards painting not only this sector but of the importance of business investment in general.
Simply put, private equity offers investors a way to back UK businesses. It has been immensely important in supporting UK startups and scale-ups over the years, and I see no reason why this will not or should not continue to be the case moving forward.
