MIND THE GAP. Whether you have a gap in your funding, your knowledge, your contact book, your international reach, your talent, your capability or your boardroom, BGF has the capital, counsel and connections to fill it. We are the UK’s most active provider of growth capital for companies with turnover of £5m to £100m. 0845 266 8860 | www.bgf.co.uk
Chairman’s Statement: Taking a leading role
Facts & Figures: BGF in numbers
CEO’s Report: Championing British business
The Conversation: Stephen Welton talks to Xavier Rolet
Partnerships & collaborations
Investment Report: Bright Prospects inc. Regional Summaries
Market Overview: UK equity investment takes off
Talent Network: Views from the chair
Winning Strategies: Taking on and beating the big guys
The Portfolio: Our investments so far
This Review shows how the hard work of the past three years – in building awareness and understanding of BGF in the business community and, most critically, in face-to-face meetings with literally hundreds of companies across the UK – has built the platform and relationships from which we have been able to accelerate our pace of investment as business confidence has returned.
Review 2013/14 Investment Criteria
We provide growth capital investments to ambitious entrepreneurs What we do W e are looking for management teams with a good track record, a proven business model and a growth strategy we can support W e initially invest £2m–£10m of growth capital for a minority equity stake and a board seat We back privately owned, profitable companies typically with a turnover of £5m–£100m W e invest from our own balance sheet so have the flexibility to meet your needs, and we can also provide further funding as the company continues to grow We offer long-term funding for up to 10 years, developing a meaningful partnership based on shared goals and objectives from the outset We invest in all business sectors with the exception of regulated financial services and property We have a strong local approach. With seven offices across the UK we strive to be close and relevant to the businesses we invest in
Our process We provide early feedback if we cannot invest ourselves and make practical suggestions for alternative options We undertake due diligence on all investments, but we make this streamlined and cost effective by being very focused We can structure our investments in shares and/or loan stock (with an option in some circumstances), and we will consider an element of cash-out from our investment for existing shareholders W e are transparent in our legal process and we adopt the same legal terms and documents for all our investments, which we are happy to share with lawyers across the country Typically a three-month process: 4–6 weeks to understand your business and funding needs, and 4–6 weeks to complete our investment
Review 2013/14 Chairman’s Statement
Taking a leading role Sir Nigel Rudd BGF has moved from start up to become a significant new entrant as an investment company focused on smaller companies across the UK. We are run independently of our bank shareholders and without a penny of public money. However, I am the first to recognise that we were born of a very particular time and circumstance, and we wouldn’t exist without the goodwill of both our shareholders and a broad group of important stakeholders. Back in 2010, the question was how to get critical funding to growing smaller and medium sized companies in the face of a much tighter credit environment and a stagnating economy. BGF, as a new, well-capitalised and ambitious equity focused investor, was one answer. Today, against the backdrop of increasing macro-economic growth and renewed business confidence, together with the development of alternative sources of funding, we face a new question. Does BGF still have a role? I would argue yes; just as much, and in fact more so than ever given the significant demand we are already addressing. BGF was never going to be a short term answer; and that was never the intention, but in a short timeframe we have reached out to hundreds of entrepreneurs and companies nationwide who are keen to develop their businesses in partnership with others. That is incredibly encouraging. BGF might not have been born if it hadn’t been for the financial crisis; if it hadn’t been for the vision of leaders of the major UK banks and the active encouragement of both government and other stakeholders over a number of years. However, what is very clear is that the structural gap that BGF seeks to meet was in existence long before the financial crisis. Growing companies and ambitious entrepreneurs were crying out for a source of patient growth capital and a partner that could provide support as well as funding. And they still are. I personally had argued the need for just such an investor for a number of years. That is why, when I was asked to become BGF’s first chairman I did not hesitate to accept. Three years later, at the end of my initial contract, I am even more pleased to say that the Board has asked me to stay on for a second term. Once again I didn’t hesitate in saying yes. The challenges facing BGF are significant. Importantly, we need to establish BGF as a trusted funding provider, and to effectively re-launch the UK growth capital industry, which has lain dormant for many years. Whilst today, we can proudly call ourselves the UK’s leading provider of growth capital to small and medium sized businesses, we are still very much at the beginning of our journey and have much to do. We are better informed about the funding landscape and where BGF can not only lead the way forward but also be a catalyst to others joining our mission. This Review shows how the hard work of the past three years – in building awareness and understanding of BGF in the business community and, most critically, in face-to-face meetings with literally hundreds of companies across the UK – has built the platform and relationships from which we have been able to accelerate our pace of investment as business confidence
has returned. This Review also begins to tell the stories of the impact that BGF investment has had on some of our earlier investments; where new jobs have been created, new products launched, new territories explored, new stores rolled-out and acquisitions have been made. One indicator of this impact is the demand for follow-on investment that we have seen so far in 2014. A cornerstone of our approach as a long term investor is the ability to continue to work with companies as they develop their own businesses, providing the much needed capital to grow much larger. For too long in the UK many small businesses have chosen to sell out early rather than build for the longer term. BGF can supply the capital but as importantly reinforce the sense of ambition. And finally, in the next few pages, Stephen sets out how we believe that BGF can do even more to deliver on our core purpose: to support British smaller and medium sized enterprises to grow by providing investment that banks are not best placed to meet through their lending businesses. Our partnership with our bank shareholders is another very good example of where we are changing historic approaches and looking to make finance generally easier to access and more available from the appropriate sources. As you might imagine, BGF is frequently asked to help, advise or participate in a wide variety of new ideas, initiatives and funds. As a Board we are looking to weigh our commitment to provide as much support as we can against the need to ensure that our core business is successfully established. We also believe that anything more that we do must be additive to the existing market; either addressing a market failure or providing support and firepower to existing players. We continue to actively review this and welcome the opportunity to join with others. We do this from a position of strength based on what we are already achieving. 2014, our third full year of operation, has got off to a very promising start. Our investment portfolio now contains more than 50 companies, each with an inspiring story to tell and among them undoubtedly are some of the business stars of the future. Since the start of this year, 12 new companies have received transformative financial backing with seven existing investee companies benefiting from additional follow-on capital. Momentum is really growing across our five key regions and seven offices and we are supporting a diverse range of sectors. We’ve also seen increasing interest from family businesses, a critical part of the UK’s SME community, and we’ve shown that we can adapt our offering to best the meet the differing needs and motivations of business owners. How we use our flexibility to adapt to these needs will be a key driver of our long term success. I am confident that the next twelve months will be just as – if not more – exciting as we deliver on our firm commitment to Britain’s thriving smaller and medium sized businesses.
Review 2013/14 Facts & Figures
BGF in numbers At 20 June 2014
£ average investment per company supported
number of companies supported
total number people employed across all investee companies
miles separate the most far flung investee companies
average turnover of BGF investee companies at time of investment.
average turnover of BGF investee companies today combined turnover of investee companies
total amount invested in UK businesses since October 2011 £2.25million smallest single investment
Most invested in one company, includes follow-on funding follow-on funding from BGF raised by investee companies
Review 2013/14 Facts & Figures
countries exported to
number of companies with international offices
awards won by investee companies
Four Seven highly experienced non-executive directors and chairmen introduced to investee companies
number of co-investments
offices across the UK
acquisitions made by investee companies
experienced investment professionals
fastest BGF investment â€“ from heads of terms to completion
Review 2013/14 CEO’s Report
Championing British Business Stephen Welton This is our third BGF Review. In the first edition, published in 2012 at the end of our first 12 months in operation, I wrote about the challenges we faced and the scale of our ambition to meet them. I used the words INVEST, INSPIRE, INFORM and GROW to illustrate the breadth of our offer as well as our mission. I wrote about the complexity of building a new financial services brand from scratch, and of earning trust and respect from companies and business owners who feel they have been overlooked in recent years, as well as the job of re-inventing the UK growth capital industry. Two years later, I am pleased to report positive developments on all these fronts. We are beginning to live up to our stated purpose: championing growing businesses and ambitious entrepreneurs across the UK. BGF is still evolving but progress is definitely being made and momentum grows. There is no doubt in my mind that there is both the demand and the need for additional long term capital for a broad array of smaller companies, beginning with start-ups, through later stage venture capital, to growth capital where BGF has already made a meaningful impact. INVEST The first five months of 2014 have been our busiest to date. We have made 12 new direct investments with nearly £75m of growth capital deployed, and we have provided a further £14m as follow-on funding to companies in our existing portfolio. We are at an inflexion point in the rate of our investment which is encouraging for BGF as well as a reflection of growing confidence in the wider UK economy. The range of sectors and regions represented continues to demonstrate that entrepreneurs and growing companies can be found in all parts of the economy and across the UK. This is why our own regionally-based model is so important. In 2013, we continued to build the teams across all regions, notably opening a permanent office in Leeds earlier this year as a direct response to the demand we have seen in Yorkshire. Leeds is our seventh office. Our ability to talk directly to local businesses by being on the ground is the cornerstone of BGF’s approach and philosophy, as highlighted further in this Review (pages 26–31). As the number of new investments made approaches 60, we also hit another important milestone: namely, a formally ‘diversified’ portfolio. This is important and was a critical element
Review 2013/14 CEO’s Report
of our initial business plan. Simply put, by investing across a range of sectors, by making both smaller and larger investments, and building scale through an ever increasing number of companies supported, we spread our risk. History shows that investing in smaller companies is not easy, but one of the clear lessons to be learnt from those who have gone before is that scale matters. It brings balance to a portfolio allowing a spread of risk from earlier stage companies with faster growth to more established companies whose financing needs are different. BGF’s ability to evaluate risk and use the strength of our balance sheet gives us the flexibility to meet the needs of a broad range of businesses. We know that “one size does not fit all” so a key challenge for BGF as we build our own scale is to use our flexibility to work effectively in partnership with entrepreneurs. As one of our portfolio company CEO’s described BGF, we should be “pro-entrepreneur”, a sentiment I wholly endorse. Clearly we have to meet our own investment criteria and drive returns for our shareholders, but the best way to achieve that is through alignment and partnership with the management teams who run the businesses we back. BGF has the financial resources and we have now gone a long way to building the infrastructure and the team to achieve the scale that is required for us to succeed in the short to medium term, but even more importantly to become a permanent solution to a long-term structural funding gap for growing UK businesses. The opportunity is significant as our own progress in the last two years shows; the scale of that opportunity is what BGF and others need to test, but a bold and ambitious approach can drive far higher levels of investment in SME’s across the UK. That is a prize well worth fighting for. GROW Of course, commercial success ultimately requires BGF to make a sound capital return on its investments. As a long-term and patient investor of only three years standing it is much too early to talk about exits and returns – the majority of our investments are still less than 18 months old. However, we are already seeing many encouraging signs of growth across the companies that we have backed. Some of this growth has been achieved through strategic acquisition. For example: Broadbandchoices.co.uk expanded their offer with the purchase of mobile phone comparison site
Review 2013/14 CEO’s Report
Cont. www.rightmobilephone.co.uk; Inoapps a leading Oracle reseller in Europe, the Middle East and Africa, completed the £5m acquisition of Crocus Consulting, another Oracle partner based in Leicester; Cennox, the Surrey based ATM specialist, acquired a US competitor; and York Mailing looked closer to home when they acquired The Lettershop Group in neighbouring Leeds. Springfield Healthcare Group has also been busy. Alongside a series of small complementary acquisitions which continue to build the footprint of their domiciliary care business, 2013 marked the opening of the new Seacroft Grange care village in Leeds, creating 100 new jobs and transforming a once dilapidated historic building overlooking an ancient village green into a new care complex. They are now actively exploring a new site with our help. Milestones were also achieved through organic growth. Boost Juice Bars and Barburrito continue to roll out their hugely popular kiosks and restaurants and there are now 18 Boost Juice and 11 Barburrito stores across the UK. This rate of expansion is matched by a more recent investee Xercise4Less, which opened its seventeenth gym when it recently transformed a former B&Q retail warehouse measuring 31,000 sq. ft. in Rotherham. Another mark of progress is the number of companies that have sought further funding from BGF. Follow-on investment, as it is commonly known, is another critical element of the BGF offer. Sustained growth requires regular funding over the long term, and we all appreciate that attracting new investors can require significant management time. BGF’s deep pockets mean that our successful investee companies know that they have a supportive investor at their side; they can seize opportunities when they arise, and most importantly remain focused on growing their businesses. In just the last few weeks, we have provided over £12m in follow-on funding to Barburrito, Xercise4Less and Bullitt. If we are to develop more larger and successful companies in the UK, and avoid the temptation to sell out too early, then it is essential that we “back our winners” and really do Build British Businesses, an early mantra of BGF. This availability of significant additional funding is a major attraction to most of the companies that we talk to. The companies that we fund are using our money to buy new machinery, make new hires, undertake more R&D to develop new products, expand into new markets, and so much more.
They are investing today for success in the future; which means we are confident that there is more growth to come, and more good news stories to be told. Our Talent Network is a major part of BGF’s offer. This comprises experienced non-executives and is growing strongly, as we continue to attract very high calibre and experienced people who want the chance to work with BGF, and most especially the companies that we are backing. We brought these nonexecutive chairmen together late last year for a day, so that we could also learn from their years of experience working with small growing businesses. As we think about the increasing scale of our portfolio, the ability to broaden our network and involve experienced outside directors working alongside entrepreneurs and management teams is really powerful. BGF is an active investor, but we recognise that we have one set of skills which is why it is so important to help identify what other experience can help a company to grow. We need the right balance of investment experience with wider business expertise, working effectively in combination with the management teams we back. If the support is well targeted it has even greater and longer lasting impact than the investment itself. We believe that bringing together entrepreneurs, management teams and independent directors is really important. We do this each year – and this September, we will invite the chairmen to join them; over 120 leaders of some of the UK’s fastest growing and most ambitious companies. It’s a vibrant and exciting club, with an inspirational membership, and it is a day that I am already looking forward to. DOING MORE In that first edition of the BGF Review, I also wrote about the importance of partnership, and our desire to engage closely with other organisations working with, and for, growing businesses. BGF has been given a unique opportunity to make a substantial and direct impact on the financial landscape given the scale of our funding and the potential breadth of our offering. Alongside others this can be far more powerful and have a dramatic effect on what is the engine room of the economy. Some of these partnerships are highlighted later in this Review (see pages 14 & 15), in particular where we have been working with organisations and initiatives to promote and increase understanding of entrepreneurship, business and finance across all parts of
Review 2013/14 CEO’s Report
society. There is no doubt that business needs to, and can, be a force for good. In an era of disillusionment with some elements of the corporate world, entrepreneurs stand out as a real beacon of aspiration and encouragement for others. I passionately believe that BGF can play its part in this arena and be one of the strong voices for smaller companies. But we also recognise that there is potentially a more direct role for BGF as an investment partner, and to this end we will be embarking on a number of new projects later this year. For example, the UK is facing an emerging ‘late-stage venture’ capital gap – a lack of institutional funds and support, exacerbated by the success of early stage EIS investing and more start-ups than ever before. With an annual investment through the EIS scheme of close to £1bn, private investors, supported by government tax policy, are taking the lead in funding an incredible array of new start-ups. In the last year over 500,000 new companies have been created. That is a tremendous achievement and something we can all take heart from. Whilst not all of these businesses will succeed, what they are all doing in their own way is changing attitudes towards entrepreneurship in the UK. Surely it is better to try and fail, learn from those mistakes, and try again than not to start in the first place. We have a growing band of new entrepreneurs, who together with existing companies choosing to invest now, will drive greater economic growth which is good for the economy and society more widely. BGF has many of the attributes and qualities needed to help: a national footprint, enviable financial resources, sound corporate governance and certainly appetite and ambition. But, we also acknowledge that we do not currently have the sector or ‘stage’ expertise for earlier stage companies, nor do we want to slow down our increasingly successful growth capital business. Our answer will be to extend our Partnership activity through a small, focused team financing growing, earlier stage businesses primarily by co-investing with other carefully selected investment firms and other partners. We currently envisage these investments being made as part of a consortium, in UK companies with a turnover of less than £5m (not seed or startup). I am looking forward to talking with other investors and partners over the next few months as we further develop and refine our approach. We do not know the exact level of demand in this area, but if there is an additional equity gap as
many commentators have described, then BGF will seek to play its part. Just as with the creation of BGF itself, the way to stimulate a new market is to actively engage and help to create the demand. As part of this approach we are also reviewing how we can work more closely alongside the Angel Co-Fund. Now in its third year, the Angel Co-Fund makes initial investments of between £100,000 and £1m in early stage companies, alongside syndicates of business angels. This has proved to be a very popular and effective way of working in partnership with a new breed of professional syndicates. Already the Co-Fund has invested in excess of £15m, alongside a further £59m from business angels and other investors, providing support for 42 companies covering a wide spectrum of sectors across the country. I very much hope that some of our growth capital investments of tomorrow will come from the seed investments of today. We continue to enjoy strong relationships with our shareholder banks and together we can offer businesses the means to considerably strengthen their balance sheets. Many of the companies that we have backed to date have been introduced via their banking relationship managers and they remain an important conduit to organisations and business owners in need of equity investment. BGF’s role sitting alongside banks, is to provide the longer term capital than many businesses need once their debt limit is reached. This is incredibly important as the economic recovery cannot be built on debt alone. With a well-capitalised business the opportunity for substantial and sustainable growth is considerably enhanced. As BGF is now the largest provider of growth capital in its particular segment in the UK, we have a responsibility to both expand and redefine the industry that we are in. More growth capital is going into UK smaller and mid-sized companies than has been the case for some years and it is fair to say that our role has been integral, although by no means exclusive. We are extremely mindful that we are part of a wider ecosystem that includes companies, banks, advisers, investors, local and central government and many others. We have been working hard to earn their trust and the following pages of this Review highlight how those relationships work in practice and how they ultimately benefit UK entrepreneurship.
Review 2013/14 The Conversation
The Conversation: Xavier Rolet & Stephen Welton discuss equity as an engine for growth. XAVIER ROLET: has been CEO of the London Stock Exchange Group since 2009. From 2000 to 2008 he was a senior executive at Lehman Brothers and latterly CEO of Lehman in France. He is a member of the Board of Overseers of Columbia Business School, a former Vice-Chairman of the World Federation of Exchanges, an Honorary Fellow of the Chartered Institute for Securities and Investment and a member of HM Treasury’s Financial Services Trade and Investment Board. STEPHEN WELTON: CEO of BGF
A great place to be an entrepreneur Xavier: In the last couple of decades, the UK has enjoyed strong growth and is now leading the rest of Europe with 4.9 million of Europe’s 23 million SMEs based in the United Kingdom. It’s a great place to be an entrepreneur. Stephen: So what do you think it is that fosters this level of entrepreneurship in the UK? Why are there more entrepreneurs here than elsewhere in Europe? Is it down to fiscal, legal and regulatory systems that are more conducive to innovation? Is it cultural? Xavier: I think the answer is that in the last few years the UK has been taking measures to broaden the funding system – and this is one of the main reasons why small and mid-sized businesses are flourishing. It is so important to recalibrate the distribution of capital so that equity investment rather than simply debt, which is technically unsuited to most growing business, is fully available and properly supported. Debt is unsuited to growing businesses Stephen: Over the last 20–30 years equity was not the most commonly used source of funding to grow businesses, be they small or large. The world got hooked on the availability of cheap debt which as the market rose looked fantastic; as the subsequent collapse has shown though the “hangover” is taking a long time to clear. In fact, more often than not, debt
Review 2013/14 The Conversation
The UK has a real chance of breaking free from the old bank lending, debtfuelled culture which serves to create an unbalanced economy
isn’t the best form of finance for young companies – it is too restrictive and leaves no margin for error. Entrepreneurs need to have a long-term alignment of goals with an investor rather just being focused on servicing the interest on debt. Equity investors are taking a calculated risk on the future potential of a business and they gain from shared success with management. Theirs is a vote of confidence in an entrepreneur’s ability to build a stronger, more valuable business. Key to all of this is being adequately capitalised to meet the inevitable bumps in the road along the way. Xavier: I agree. When Continental Europeans think business funding, they almost exclusively resort to bank lending. There, corporate funding is essentially fuelled by bank lending to the tune of about 75% to 80%. You see capital distribution that is in the hands of a very small number of banks who themselves refinance the deposits they collect and leverage their balance sheet from the Central Bank. But not so in the United States where the opposite is true – about 18% of corporate funding in the US comes out of the banking system. I think the UK is something of a “halfway house” in that it has started to recalibrate its fiscal system, keeping in mind that the leverage of banks’ balance sheets is subsidised through the deductibility of interest; BUT risk capital still suffers from
a quadruple taxation, at the corporate, dividend, capital gains and transaction level. The measures that the UK Government has taken, both fiscal and regulatory, are starting to show a positive impact, removing some of the shackles that had impeded an equity based funding mechanism that was invented in this country. The notion of underwriting business risk through equity, which also carries the potential for reward, goes back to the seventeenth and eighteenth centuries. The UK has a real chance of breaking free from the old bank lending, debtfuelled culture which serves to create an unbalanced economy. After all, every economic crisis of the last 100 years has been debt related. To have a healthy banking system debt needs to be readily available, but used in the right way.
amount of money that ISAs can invest in equities. The inclusion of AIM stocks in ISAs alone has seen a 200% increase in retail investment into growth stocks since August last year. And we could do more; we could go further to rework accounting rules and improve the general regulatory environment. Why does it take six months for an SME to get its prospectus signed off by regulators when a blue chip can get it done in six weeks? There is no evidence whatsoever that SMEs have higher incidents of fraud or corporate malfeasance compared with blue chips. Do they represent a higher economic risk at the start-up stage? No doubt about it, but let’s separate governance, misbehaviour and fraud from pure economic risk. We need to provide an appropriately regulated environment for these businesses.
The UK Government of recent years has made some positive and progressive moves Xavier: There are a number of measures being taken which are successfully serving to recalibrate the funding system, remove regulatory and fiscal shackles and make the environment more attractive for investors. These include the expansion of ISAs to include AIM stocks, the repeal of stamp duty on trading AIM shares, making the Enterprise Investment Scheme permanent, and expanding the
A lack of long-term certainty? Stephen: The question really is whether these various measures will result in a quantum leap for equity and how it is used, or is it merely tinkering at the edges? And, what happens when sentiment changes? How do you make sure that the capital doesn’t just run away again? For example take the EIS market, what will private investors do when interest rates go up and are at more attractive levels? There will always be concerns about
Review 2013/14 The Conversation
Taking a business to the next stage can be daunting for any company.
…innovation is not coming out of the well-established hundred billion plus companies … it’s coming out of SMEs and universities.
Cont. change, or at least history tells us that fiscal rules will inevitably change. This makes for a lack of long-term certainty. We need stability and patience from politicians as well as their understanding and commitment to help. The long term commitment to EIS is a really good sign, but we need to do more to promote the culture of equity. Xavier: The UK Government has listened, perhaps some might say it’s tinkering at the edges or that it’s just an experiment, but they’ve started to make changes. We have to hope that all political parties whether Labour, Lib Dems or Conservatives, buy into that positive impact. Small and mid-sized businesses are after all the backbone of the economy. Political decision makers should feel encouraged by the progress, which is remarkable if we compare it to our immediate neighbours. A cultural issue? Stephen: So do you think there’s a cultural issue at play – an equity aversion, an over reliance on debt, a default that means we look toward the banks? Is this engrained in our culture? Don’t we need to build a familiarity and understanding of what equity is and how it works? Xavier: I do think investors have been affected by a historically hostile regulatory approach to equities, taxation and an imbalanced fiscal treatment. But there are things that we can do – are doing – to
mitigate this sentiment. For example, two years ago, we launched ELITE. It’s been a huge success in Italy, a country that is very anti-equity and where the fiscal and regulatory environment is hostile. But close to 200 Italian companies have now joined the programme. This has in turn created a new wave of optimism that has been noticed by a new generation of Italian politicians. We have also launched ELITE here in the UK, and intend to expand it across Europe. The first cohort of companies that have joined – including, of course, two companies that BGF has invested in – are seeing exciting results. We think there’s potential for tens of thousands of companies in the UK and Europe to benefit from these sorts of initiatives, which introduce them to private and public investors at an early stage. And it is not just about giving access to investors, but also helping these companies to refine their business plan, look at governance and prepare themselves for the business of raising capital. We provide access to legal advisors, broker dealers, and financial intermediaries. Stephen: BGF is a strong supporter of the ELITE programme. Taking a business to the next stage can be daunting for any company and it can be a lonely place at the head of smaller or mid-sized private business. As many successful and established enterprises have proved,
there is often real benefit to be gained from looking outside of an organisation for support. The ELITE programme, like BGF, is a much-needed source of education, support and contacts for businesses with ambitions to grow. Growth is of course highly dependent on ambition, on innovation and on entrepreneurship – all qualities that should quite rightly be supported. We would also like to see big businesses getting behind equity funding of SMES Xavier: There’s close to a trillion pounds of cash sitting on the balance sheets of large UK corporations, which is not generating much growth. There is a real opportunity for them to make equity investments in younger, growing businesses that operate in sectors that they know, while enjoying tax relief that they wouldn’t achieve for investment in their own business. This sort of corporate venturing would make a huge difference. Stephen: Do you think large corporates would be willing to do that? Xavier: I think some would. The amounts of money needed are de minimis – you’re talking about a few millions, maybe a few tens of millions. When you think about it innovation is not coming out of the well-established hundred billion plus companies that have been around for decades; it’s coming out of SMEs and universities. This could make enormous
Review 2013/14 The Conversation
…we need to build confidence that equity can be the fuel to power growth. …there is huge potential to stimulate the UK and international small and mid-size enterprise environment.
sense for the large engineering, drugs or software companies that may have failed to convincingly innovate in the last few years, and may now be under pressure from their shareholders. ‘You’re big, you spend billions for R&D but we’re not really seeing too much coming out.’ European corporates need to do this too – otherwise they will miss out on so much innovation. What we’re ultimately hoping will happen is that our European neighbours will ask why they are still in recession, or why growth is low; and why conversely the UK is growing at a 4% annual rate? We’re talking about an identically sized country to say France or Italy with relatively equal economies and generally stable access to commodities and cheap raw materials. So why is the UK economy outperforming so massively versus its European neighbours? It’s because of job and wealth creation, which has been driven by the smaller, and mid-size enterprise segment over the last two and a half years. Stephen: What about insurance companies investing in private companies as well as public companies? There is certainly more that could be done here – encouraging, rather than actively discouraging, pension funds and insurance companies to invest. Xavier: Absolutely. I remember when I joined the LSE in 2009, the NAPF’s statistics showed that UK pension funds
were invested in equities to the tune of about 70%. Last year it was down to 30% mainly owing to regulatory and fiscal decisions so pension funds have been forced to invest in government bonds. European governments have been piling on debt for several decades – the headline numbers don’t account for a lot of the pensions infrastructure and social security debt, which is a clear legal liability of the government. So the fully adjusted debt situation of many of these governments is far worse than the 100%–150% of GDP as currently stated. We need to create wealth to finance that and help Governments effectively balance the accounts. I think the UK has an opportunity to lead the way here. Equity – the fuel to power growth Stephen: We must hope that The Treasury and the wider government will start to build on the success achieved to date. In the UK encouraging action has been taken and it’s about building on these positive steps. We need to build confidence that equity can be the fuel to power growth: wealth, value creation, and ultimately jobs. Xavier: And it’s not just about creating new wealth, which is important on its own, but it’s about reducing the reliance on a high concentration of leverage amongst the very small number of banks, which is detrimental to the economy.
I’d also very much like to see European countries take similar steps to creating new wealth. It would be enormously helpful to the UK because we export to these countries; it would make Europe less bureaucratically motivated and more SME oriented; it would make for more compatibility and a better deal-making environment. I strongly believe that there is huge potential to stimulate the UK and international small and mid-size enterprise environment. Stephen: I couldn’t agree more.
Review 2013/14 Inspire and Inform
Partnerships & collaborations The UK is a great place to found and build a business. With more start-ups than any other country in Europe last year, we are seeing a new generation of ambitious entrepreneurs looking to build the UK economy of the future. The pipeline of emerging talent and businesses has never been stronger, which is why it is more crucial than ever to help as many of these entrepreneurs fulfil their potential. Of course, there is a big jump from wanting to start a business to successfully running and growing one – and we believe that BGF has a key role to play in encouraging, nurturing and supporting British entrepreneurs. We want to see the best people working with and for small businesses, and we want to help them to make the best decisions they can, whether these relate to finance or the many other aspects of running a business. For this reason, inspiring and informing are core elements of our approach. It is why we are working hard with banks, advisers, business networks, business schools and universities, the media and government to help support aspiring business owners –
and to make the case for equity as a driver of growth and an essential element of any well capitalised enterprise. It is why we sponsor national schemes that champion growth and enterprise such as the Sunday Times’ Fast Track and Tech Track and The Telegraph’s Festival of Business. And it is why we sit on judging panels for awards such as the national Local Business Accelerators scheme; mentor fledgling companies or young people taking their first steps into a business career; and nurture relationships with business and academic organisations, trade associations and CEO networks. We have also worked closely with the UK Business Angels Association whose aim is to promote EIS and angel investing for start-ups – a policy we wholeheartedly support and where we are looking to do more. Above all, we want to see increased understanding and awareness of growth capital throughout the UK economy. It is how we will support growing British businesses. That is at the heart of BGF’s philosophy, culture and vision.
Inspire: We bring insight and analysis to help entrepreneurs overcome the challenges that face them and seize their opportunities to forge fastgrowing businesses
Inform: We want to inspire today’s entrepreneurs to achieve more, and tomorrow’s business owners to take their first steps
Is growth capital right for your business? That question is certainly much easier to answer if you know what growth capital is. In launching BGF, we helped re-launch the growth capital industry and part of our role is to build understanding of what this means for entrepreneurial businesses. In essence this is the long term risk capital, however structured that provides an additional source of funds to mainstream bank debt that will help a business to grow in the most sustainable and successful way. To this end, earlier this year we worked with The Telegraph Media Group to develop a series of six films that explore the funding alternatives available to small and mid-sized UK businesses, and to provide help with some of the questions that growing companies need to be able to answer.
Review 2013/14 Inspire and Inform
Review 2013/14 Market Overview
UK equity investment takes off Toby Austin, CEO of Beauhurst 2013 was a record-breaking year for total UK equity investment in smaller businesses with over £1.5bn of start-up, early-stage, venture and growth capital invested into 500 of our fastest growing private companies. The start-up and growth capital segments have been especially strong. Overall, the number of equity investments made rose to an all-time high, and there has been a significant increase in the total amount invested into UK-based businesses.
£0m £1,091million invested
Number of deals and amount invested* (at £2–10m BGF growth-stage)
Total number of deals and amount invested
Investment hits all-time high in 2013 £1,500m
stage as it is at seed and venture, but it still accounted for more than one third of all growth investments in 2013.
* Where the investment size was not disclosed a market average was applied.
The increase in amount invested between 2011 and 2013 represents a CAGR of 36%
Business and Professional Services was the second busiest sector at the growth-stage, with annual deal numbers rising £300m steeply over the past two years. But there are signs of growth 492 deals across all sectors. 322 deals £0m Similarly there was a good spread of investments across the UK. 2011 2012 2013 Unsurprisingly, London accounted for the largest share; £110m of According to Beauhurst’s most recent annual review, the the £416m of growth capital invested into UK businesses in 2013. number of investments made rose by 35% compared with 2012. But particular mention should go to Scotland where Beauhurst The picture for volume and total value of investment has been estimate a remarkable increase in investments made in BGF’s improving over the past three years. More than twice as many range between 2011 and 2013. Indeed, BGF were directly businesses secured investment in 2013 than in 2011; the responsible for many of these. Whilst the individual investment amount invested into these growth-hungry recipients increased size is generally smaller than the national average, Scotland by half over the same period. emerged as the second most active location for equity Extrapolating from Beauhurst’s preliminary results for the first investment in UK, after London. quarter, 2014 looks set to continue this trend. It’s still early days, but deal numbers were up 30% in the first quarter of this year 2013 Seed-stage investment blooms compared with the same period in 2013. Number of deals and amount invested at seed-stage* £600m
Growth-stage businesses were involved in the most deals When the universe of UK businesses receiving investment is segmented, it is the growth-stage businesses – established, typically profitable and seeking funding to finance further development and expansion – that have enjoyed the steepest rise in the number of investments made in each year since 2011. The average investment was £4.7m. Looking specifically at the market addressed by BGF, Beauhurst identified 88 businesses that secured growth-stage funding between £2m and £10m in 2013 – an increase of almost 40% compared with 2012. BGF was the leading provider of growth capital to this group in 2013, with a market share of 24%. These businesses form such an important part of the UK economy, and increased investment to boost their performance, productivity and overall contribution to that economy is to be welcomed. What is critical now is to expand the market by actively increasing the number of companies raising investment. The technology, business and professional services, and industrials sectors have seen the greatest upswing in growth capital investment. Technology isn’t as dominant at the growth-
£60m £30m £0m
* The increase in amount invested between 2011 and 2013 represents a CAGR of 30%.
It is not just growth-stage investment that has expanded. Beauhurst found that seed-stage investment also skyrocketed in 2013, encouraging news for budding entrepreneurs. The amount invested into seed-stage businesses in 2013 exceeded the previous two years combined and deal numbers rose by 50% compared with 2012. In total, investors backed 218 young businesses, up from 146 in 2012. The investment amounts were disclosed for 142 of these and totaled £142m. Setting aside four seed investments of more than £5m (all in
Review 2013/14 Market Overview
the pharmaceutical sector), the average disclosed seed-stage funding was c. £550k. Beauhurst found that equity crowd funders became a more prominent source of finance for young businesses at the seed stage, and 15% of seed-stage deals were completed through such platforms in 2013. Indeed, the equity crowd funder Crowdcube was last year’s second most active funder and its share of total seed-stage deal numbers rose to 10%, contrasting with 2% in 2012. The proliferation of greater tax breaks under the EIS and SEIS schemes did much to reduce the risks involved with early-stage investment, thereby attracting more money and more angel investors. Equally, a prolonged period of low stock market investment returns in the UK has encouraged high net worth individuals to seek potentially more lucrative returns from earlystage investments. However, equity crowd funders – and crowd funders in general – have provoked a degree of concern on the part of investors and regulators alike and it should be acknowledged that this industry is still in its infancy. But it is important to remember that the road to success is paved with failure and both the government and regulators are taking steps to protect retail investors. Decline in amount invested in venture-stage companies Whilst seed-stage and growth capital investing grew, there has been a recent decline for businesses at the venture-stage, which are typically too large for seed-stage funders and too small for equity investors who look to back more established enterprises. Beauhurst data shows that while deal numbers increased last year, total investment actually fell. The investment cycle might provide some explanation and it is possible that 2013 represented a scarcity in venture-stage investment opportunities. Beauhurst’s findings for 2013 revealed a strong emerging pipeline of seed-stage companies and the progress of these companies into the venture-stage might provide more exciting prospects for investors. Conclusion Beauhurst’s findings revealed that 2013 was an exceptional year for UK equity investment and 2014 looks set to progress similarly. More specifically, investment into growth stage and seed stage companies has experienced a significant boom. Both innovation within the finance industry and developments in specific government tax regimes and initiatives have served to give business funding a boost. This is to be welcomed and we have every reason to believe that the ecosystem supporting entrepreneurs, investors and the business funding community will continue to thrive over the course of 2014. Beauhurst provides high-quality data and analysis, tracking thousands of growing companies, the deals they are doing and the investors that are backing them. Their products and services are used by over 100 private and public sector organisations. www.beauhurst.com
Growth-stage: Investments made into established and profitable businesses with a well-defined product offering. Venture-stage: Investment into less-established businesses with a medium to high element of risk. Seed-stage: An investment into very early-stage businesses that need money to start out, for product development and/or proof of concept.
Review 2013/14 Winning strategies
Winning Strategies Taking on and beating the big guys
Smaller companies have some natural advantages over their larger rivals. Their size enables them to be fleet of foot and to exploit new opportunities quickly. It is also possible for a smaller business to know its customers much more intimately; and differentiation can be easier to achieve when you are focused on only a limited number of activities. Moreover, the growth of the internet and digital distribution has been a great leveller, enabling smaller companies to compete much more efficiently. It would be a mistake, however, to assume that the battle of small versus large companies is simply a tale of David versus Goliath. It is not just the differences between large and small enterprises that are striking. The reality of modern business is that strategic thinking is not just the preserve of large and braver rivals: smaller companies often use the same strategies as their larger counterparts as they seek to grow. The success of many of the companies in the BGF Portfolio proves that size is not an impediment to applying and successfully executing winning business strategies.
Market segmentation Segmenting customers in a particular market should allow a business to better understand and better serve their specific needs by providing highly tailored products or services. Even the largest companies lack the capacity to supply the whole market, so they often break down customer demand by segment and then decide which of these segments they are best placed to serve. Trunki, which designs, distributes and manufactures travel products for children such as the famous ride-on suitcase, is a perfect example, says Ned Dorbin, the Bristol-based investment director who has overseen BGF’s investment in the company. “Trunki actually created this market,” Ned says. “The founder, Rob Law, identified a very specific segment of the market for luggage – children – and then designed the ideal product for it” he added. The company has been a huge success, having sold over 2 million of its suitcases all around the world – it now sells in 97 export markets – and the Trunki name is fast becoming a byword for children’s suitcases in the same way as Biro, Hoover and Google came to own their markets. Trunki’s impressive sales figures underline an important point about market segmentation as a business strategy: even a seemingly small and specialist market niche can generate sizeable sales volumes if the product is right and distribution is wide enough. This is the principle that underpins the ‘long tail’ phenomenon – the idea that a large number of small niches in a market may collectively be more valuable than its big traditional categories which individually account for sizeable revenues. Alistair Brew believes that hospitality business Peyton and Byrne is another example of successful market segmentation. Its founder, Oliver Peyton, realised that the market for catering services in public buildings was not homogenous and that
Review 2013/14 Winning strategies
as VMware, Cisco and Qinetiq. The “Skyscape Alliance” has established the cloud products offered by Skyscape as amongst the most secure solutions available anywhere in the world; and, that has in turn enabled the company to scale rapidly, clinching a series of transformative deals to provide the British government with its platforms as part of the G-Cloud project now being rolled out by departments such as HM Revenue & Customs and the Ministry of Defence. Another good example of imaginative collaboration is Xercise4Less, a chain of budget gyms in which BGF invested last summer. One fascinating strand of its expansion plan focuses on partnerships with large retailers with stores in the outLeveraging partnerships of-town locations that Xercise4Less favours for its own gyms. A collaboration between two businesses can often be truly Now that the ‘click and connect’ internet shopping phenomenon transformative. Many high-growth businesses are using has taken off, many of these retailers have more space in such partnerships with larger firms to achieve scale and expedite stores than they really need and are looking to use that excess access to a much larger market than they could achieve as capacity in new ways that will enhance their outlets’ appeal as quickly on their own. customer destinations. Xercise4Less has already opened one Take Bullitt, the specialist mobile phone product designer new gym within a Tesco store in Stockton-on-Tees and hopes to and manufacturer in which BGF invested in 2013. Its licensing agree similar partnerships over the next few years. agreement with Caterpillar, under which it produces rugged Richard Taylor who led the investment in Xercise4Less from and durable mobile phones for the global plant and equipment BGF’s Leeds office said of its partnership approach: “Many of business, has given it access to a marketplace thought to be these large-scale retailers have similar problems and that offers worth as much as £1bn a year. It also has deals with JCB and lots of opportunities for Xercise4Less. These partnerships could Ted Baker. enable us to really accelerate our roll-out plans.” It is not only customer reach that these partnerships are Another BGF investee, ATM specialist Cennox, uses delivering. Importantly, argues James Austin, such deals have also enabled Bullitt to build a supply chain that includes top-end partnerships in a very different way; it regularly bids for business as part of a consortium of companies, giving it an opportunity electronic design manufacturers that would not normally deal to access much larger contracts than it could cope with with an enterprise of its size. “Bullitt’s partnerships effectively single-handedly. give it the size it needs to appeal to these industry leaders.” James is also overseeing one of BGF’s most recent investments, Sometimes, those consortia include unexpected partners where Cennox is able to add its expertise to a broader value offer. One a £4m stake in Skyscape, which develops cloud computing good example is a bid that the business is currently working on solutions using technology partnerships with companies such certain attractions were well-suited to a high-end offering. Peyton and Byrne has won contracts to run high-quality restaurants at eight of London’s best-known visitor attractions, including the National Gallery and the Royal Academy of Arts. “The look and feel of those restaurants, and the quality of the food, is absolutely tailored to the customers that these attractions bring in,” explains Alistair, who has been a nonexecutive director of the business since BGF invested in 2012. “It’s a niche of the market that simply wasn’t being catered for before” he added.
Review 2013/14 Winning strategies
with a leading construction company to help move thousands of ATMs on behalf of a major bank. “This is a complex marketplace where Cennox is able to participate fully in the supply chain by working with a wide variety of organisations,” says Alistair Brew, who sits on the company’s board. Making acquisitions M&A activity is not only the preserve of very large companies: smaller businesses also often use acquisitions as a way to build scale and reach, or to gain access to new products, skills and experience. For example, at York Mailing – a printing business specialising in marketing materials – a £10m investment from BGF last summer helped the firm to clinch a deal that did both. “The acquisition of a third facility to add to York Mailing’s two existing printing operations gave it additional manufacturing capacity and extended its customer base; but it also significantly enhanced the service capabilities of the whole group,” says Richard Taylor. “Each of the businesses in the group is now able to cross-sell a wider and better range of services to both existing and new customers” he added. Those customers include well-known retailers such as Marks & Spencer, The White Company and Boden, which might have been expected to turn their attentions away from print media towards online marketing by now. However, York Mailing’s acquisitions have enabled it to offer these customers valueadded services in important niches – not least in helping them use print to drive online traffic. Acquisitions have also been an important part of the strategy at Springfield Healthcare, a Leeds-based provider of domiciliary care in which BGF invested in 2012. “This is an industry characterised by single-site businesses that are often familyowned and by acquiring some of these firms, Springfield has been able to expand its geographical footprint beyond Yorkshire throughout the North East,” says Taylor. “Ultimately we see this
business operating throughout the North of England” he added. Part of the acquisition strategy at Springfield has been to buy businesses that give it access to new types of market. Having started out as a provider of care to older people, it also now works with local authorities to provide services to groups such as children and people with learning disabilities. And, even in its traditional marketplace, the skills and experience that the company has acquired have enabled it to broaden its product range. Springfield has pioneered the concept of a residential care village and at its recently built Seacroft Grange Care Village near Leeds, it now offers older residents a wide range of homecare options ranging from 24-hour personal and nursing care to independent living. Industry leadership A business that can solve the problems confronting its industry – sometimes problems that people didn’t realise they had – is in a good position to grow quickly. And, there is no reason why smaller businesses, if they are brave enough, should not strive to position themselves as leaders in exactly this kind of way. Take The Exchange Lab, in which BGF invested £5m at the end of 2013. It operates in the online marketing sector, working with ‘demand-side platforms’. These DSPs sell digital space to advertisers through an automated process in the space of milliseconds – when a computer user opens a particular web site, the DSP enables advertisers to bid for the space on that site in order to promote their products; and, what the advertiser is prepared to pay for the space depends on the site and data such as the location and browsing history of the computer user. Dealing with each DSP is complicated and time-consuming for advertisers – whether large companies or advertising agencies – but The Exchange Lab has built an aggregation platform that enables them to transact with seven separate DSPs all at once. Until the company launched its new service no-one else
Review 2013/14 Winning strategies
had thought to develop such a platform, but advertisers are already seeing its value – they get access to a broader inventory, maximising the number of relevant users viewing their advertising and increasing their return on investment. “No-one else has achieved this and it is an innovation that gives The Exchange Lab an immediate value proposition,” says Chris Hodges. “Its leadership will also give it an edge in the next stage of this industry’s development – its platform is amassing a wealth of demographic and behavioural data from the sales being made through it and this data, when coupled with other sources such as advertisers’ own data, makes for a very rich and marketable information set” he added. At Aberdeen-based Petrotechnics, where BGF made a £6m investment in 2013, it is a similar story. The company’s enterprise software platform, Proscient provides a tool to improve the management of safety critical operations in oil and gas and other hazardous industries around the world. Petrotechnics’s software is used from Alaska to Australia by many of the major energy companies. The twin goals of improving safety and productivity are often seen as mutually exclusive, but Proscient changes the safetyproductivity dynamic. By providing visibility of safety-critical equipment and tasks, barriers to major accident hazards, and compliance with safety policies, Proscient allows a company to manage its risk levels, whilst also improving the planning and execution of work. Mike Sibson believes, “Customers are finding it increasingly difficult to keep on top of their safety-critical maintenance backlogs as their production plant exceeds its design life. By providing unprecedented visibility of work execution, and feedback into maintenance scheduling systems, Proscient can make a huge difference for its customers. Petrotechnics was recognised by Gartner which named it one of four Cool Vendors in Oil and Gas 2014.”
Ned Dorbin, Investment Director – South West & South Wales
Chris Hodges, Investment Director London & South East
Alistair Brew, Investment Director London & South East
James Austin, Investment Director South West & South Wales
Richard Taylor, Investment Director North, North West & Northern Ireland
Mike Sibson, Investment Director Scotland
Review 2013/14 Talent Network
Capability, counsel and connections Views from the chair
Cate Poulson About the Talent Network The feedback that we get from entrepreneurs and business owners suggests that our partnership approach and the sharing of expertise, guidance and contacts is just as valuable to them as the capital that we inject into their businesses. For this reason, we have created a Talent Network to develop relationships with a broad range of experienced business leaders from across the corporate spectrum who can offer valued executive and non-executive support to the companies that we back. Their common link is a commitment and drive to encourage and help great smaller and mid-sized businesses with ambition to grow. By cultivating these relationships, we can give our investee companies unique access to expert and inspirational talent, which is unlikely to be have been available to them before. We have, to date, placed 44 highly experienced non-executives with investee companies and our Talent Network now constitutes the largest pool of non-executive capability in the UK. In our experience, this additional insight is critical for developing businesses. Entrepreneurs tell us that what they really need is real life experience from someone who has been in their position and knows what it is like to run a business. But with this comes some natural uncertainty or even scepticism for a founder entrepreneur who is inviting an outsider to join their company board. In this article three members of our network; Paul Gilbert (Non-Executive Chairman of Better Bathrooms), Stephen Bellamy (Non-Executive Chairman of Benefex) and Andrew Caffyn (Non-Executive Chairman of Thames Card Technology) discuss what their roles involve and how it works in practice.
What attracts you to working as nonexecutives in smaller and medium sized businesses? What’s the appeal? SB It’s the potential for substantial growth and finding that entrepreneurial spirit that can sometimes dissipate as a business gets bigger. You typically encounter more ‘can do’ people in smaller, younger organisations. I like to see businesses that I can relate to and which operate in a market that is rich in opportunity. PG I took my first non-executive appointment in February 2012 so am relatively new to the role. I had got fed up with “corporate porridge” and all that it sometimes entails, but still very much wanted to work and to make a difference. I think gone are the days when non-execs are just looking for something to fill their time. The SME space offers the types of businesses and entrepreneurs with whom I enjoy working and where I feel I can bring something worthwhile to the party. There’s also an opportunity to participate in the investment upside, which is personally exciting. AC I escaped big corporates seven or eight years ago and have since worked in private equity backed businesses. I enjoy the focus that private equity brings to a business – enabling rapid progress and creating value. Conversely, big corporate environments can be suffocating. Smaller businesses do tend to be challenging but you can make a real difference – and quickly. What do you look for in businesses of this size and stage of development? AC I am involved in businesses that are already growing from an established base but you need to assess if that trajectory is
Review 2013/14 Talent Network
SB = Steve Bellamy: Non-Executive Chairman of Benefex, and ex CFO and COO of Sherwood International and Becrypt
PG = Paul Gilbert: Non-Executive Chairman of Better Bathrooms, The Gym Group and Clothingsites.co.uk, and former FD of Matalan.
AC = Andrew Caffyn: Non-Executive Chairman of Thames Card Technology, ex CEO of Deloro Stellite Group and Avery Weigh-Tronix, Chairman of SMD
sustainable. I look for some real spark in a management team that is generally hungry to realise the next big idea, as well as clear customer engagement. SB For me, the people are the most important ingredient. It’s about the journey that they are on and where they want to go. Do they have a passion for the business and are they up for the challenge of building the business aggressively? Can I make a difference? Is there adequate evidence to date of the team’s ability to execute and is the growth potential for the business substantial? These are the questions that I would pose to establish the level of inherent potential. PG When you meet someone face to face, the concept behind a business can come to life: so, in the case of Better Bathrooms which I chair, it’s not just about selling bathrooms, it’s also about all the other things that could potentially sit alongside. That is when the opportunity becomes very exciting indeed. You’ve all come from executive backgrounds. What’s the biggest difference between what you were doing and the way it works now? PG I know that I don’t want the CEO’s job. I’m looking to do something different. In a large corporate environment, it can be difficult to get things done quickly as so many interests are misaligned; whereas in SMEs, quite frankly, if you’re not aligned, it stands out very obviously. The relationship around the board table is more open, honest and direct – there is less politicking. I recently attended a board meeting where we had a very robust debate around some important issues but we didn’t fall out; we made real
progress. That discussion in a corporate environment would have taken forever and so often no immediate action is taken thereafter. What do you think these businesses really need from their non-exec and how do you describe that role to a founder entrepreneur? SB It is fair to say that there can be some scepticism at the outset of the relationship and business owners will naturally question why a non-exec is needed. Are they there as a policeman or spy? If there’s no substantial commercial value, there is no point to being there so the key is to show in the early stages how you can make a direct contribution. For me, the most significant thing is to be a facilitator and a mentor. You bring experience of having been there before, not necessarily in the same industry but in similar types of businesses. You have made mistakes and seen mistakes happen, and you have some battle scars to show for it. AC I think it’s important to find a fit where the skills of the chairman are a bit different and complement and support the CEO’s. CEOs of smaller businesses can feel quite isolated at times and the idea that there might be an external chairman or non-exec that is a little battle scarred can be reassuring. SB We are typically working with the founders so they know their business from the ground up. If anything, it’s a matter of asking them to let go to the wider team, which is an essential part of the growing process. AC There is a great deal that smaller enterprises cannot be expected to know
and that becomes more obvious as they expand and grow. For example, exporting. You start exporting but quite quickly all sorts of issues emerge which you have never had to think about before. A non-exec that has been involved in international businesses before is able to shortcut that learning process and pre-empt the issues. It is in these situations that business owners can really see the benefits. PG I will weigh in on a whole range of very diverse issues – it can be about people and how they are incentivised and how they best work together; it might be about property and identifying or securing new sites; or it might be making new introductions. But, there are certain things that I can’t help with and am just not best placed to do so. On balance, I find that the founders aren’t taking different decisions with me on-board than they would ultimately have taken on their own. I honestly don’t believe that. I think what we’re helping them to do is to get to the answer quicker and in a way that they feel more confident about, because as the business grows we inevitably start to make bigger and bigger bets that may put their investment at increased risk. SB For many business owners, “nonexec” is a byword for the “black book” – and they think this is directly helping them gain new customers; that the single way that you will add value is to generate more sales. One of the first things I always say is don’t expect me to make any sales. I will help make connections but it will be with a whole range of different people, for instance specialist advisers or suppliers. You need to address this early so as to
Review 2013/14 Talent Network
avoid disappointed expectations. PG I have heard it said that there is no such thing as a non-exec chairman, or at least not in the traditional sense. Non-execs are generally younger than they were 30 years ago; its not a bit of fun, it’s a real live engagement that requires pulling up your sleeves. I’m certainly not sitting there clock watching or confining myself to fixed areas of focus, I’m there when I’m needed. Of course if the demands placed on me felt out of kilter with what we have agreed, then I’d raise it with the CEO but so much is generally happening within these businesses that no two weeks are the same. Its difficult to be too predictive and certainly you need to be flexible. When you look at what you have contributed, it’s sometimes surprising how little of it relates to what you would probably expect the chairman’s role to entail. Do management fear that the non-exec will take control? PG I think you have to differentiate between intervention and interference – you certainly don’t want to be interfering. CEOs must be able to get on with running their business. Also gaining early agreement on the realistic end goal is crucial. But at the same time, we all have responsibilities and there is a place for intervention, either before there’s a problem or if a problem arises. AC You have to remember that you’ve got the same goals at the end of the day. Although the non-exec role is different, it becomes easier once that alignment of interests is recognised. You’re there because you’ve got complementary
experience and together you can build something stronger and more valuable. What common issues and obstacles do you see SMEs facing on their path to growth? PG People. One of the biggest challenges for an SME is how to attract high quality people and incentivise them accordingly. Of course as a business grows, management needs to increasingly delegate. But there is also a very important timing issue at play. These businesses may need to bring in somebody that can run the business in five years time but are still content to do the job as it stands today. Making the mental leap to appoint a competent full time Finance Director in lieu of a part-time bookkeeper, for example, can be an enormous step for a business owner to take. SB I agree with Paul on people but SMEs can also be challenged by processes and structure. Of course you need to be careful that you don’t kill a business with process and structure, but equally you must move past a quick fix, “do as we go” mentality and lay down some proper foundations for the future. One of the first questions I ask is “what’s the end game”. It can be difficult to get SME management teams to really articulate their ultimate goal. Is it to be number 2 in the market; is it to personally make £20m? Many businesses do not spend anywhere near enough time considering where they are heading, or where they really want to be. They go straight into execution mode. PG There’s a big cultural challenge as well. You’re a young, vibrant business and that’s an important part of a business’s identity that any founder would want to
protect. But equally, you need to be able to take elements from the outside world – perhaps from a well-established large corporate entity – and successfully implant them. Finding people that have got the requisite skills and then absorbing them seamlessly into your culture is not always easy. The risk of organ rejection can be high in the first three to six months. AC You can also have different opinions within an organisation – perhaps between a new management team and the original founder. The new team may see advantages in finding fresh ways to do things but the established team may be comfortable with current practice and concerned about significant change. A part of your job is to make sure that everybody is talking to each other – you’re not just mentoring the CEO, you’re mentoring the whole team and getting them to open up and speak to each other. Everyone should be working in pursuit of the same ultimate goal. SB Fundamentally we have to respect the fact that at the end of the day this is someone else’s business – like BGF, we are minority shareholders. You can’t force people to do anything and nor should you. You need to inspire them, make them aware of alternatives or different ways of doing things, and highlight what you have seen in other situations. It’s about asking, challenging and questioning – not telling. PG Style and diplomacy is important. I’ve worked hard on softer skills, in particular considering how things are perceived and how to manage the personalities involved. People react to different forms of persuasion, so choosing the right time and approach is critical.
Review 2013/14 Talent Network
How do you see your role evolving over time? SB The role is, in many ways, frontloaded and you do tend to need to be more involved and hands on in the early stages – understanding the business, and helping to make the necessary changes. And then, assuming that you’ve done your job well, it becomes more a question of guiding and making sure that things are still heading in the right direction. PG Don’t forget that the management team will also be evolving along the way, which changes the nature of a non-exec’s involvement. AC At some point or other, it is inevitable that something will go wrong. Then it matters how you respond in a positive, problem solving way. PG Eventually there may be an exit, which may be unfamiliar territory for the founders. Drawing on one’s M&A experience and keeping management focused on running the business could be the difference between a successful process or not. What are the personal challenges that you encounter in performing your non-exec role? AC I haven’t found it hard to hold back, in fact in some ways I think the opposite is true. I almost over compensate for it so I don’t behave like a CEO by default. I’m keen not to say, ‘Well of course, in my experience’ and then spend a lot of time explaining what I have done before. In fact the businesses that I work with have been much more open to learning from my experiences than I had assumed. SB I think you have to assume that you’re going to be constantly challenged.
Regardless of the theory, every business is quite different. People are at different points on the journey and facing totally different challenges. You can sometimes make incorrect assumptions about where they are and actually end up having to move backwards to move forwards from your initial starting point. PG Sometimes it’s just a matter of adjusting your style, asking questions in a way that isn’t dictatorial, posing questions and prompting management. In the early days of transitioning from exec to non-exec, you need to work hard to rein yourself in. There is something in applying the executive test. If I find myself picking up the same responsibilities time and time again and it looks and feels like an executive responsibility then somebody somewhere is not doing their job properly. That requires a wider conversation. It becomes pretty obvious where the nonexecutive responsibilities start and where they should finish. There is a balance to be achieved between helping and interfering. How in practical terms does that two-way relationship between founder/ CEO and non-exec work best? SB Well if it isn’t one where you can pick the phone up to each other easily then you haven’t got the relationship right. There doesn’t always need to be a particular issue in play: if a couple of weeks go past and I haven’t heard from my CEO, then I will call just to touch base. “How’s that big opportunity progressing? Is there anything I can do to help?” It does need to be a natural relationship, not a forced one.
PG There is a basic structure for engagement and communication around board meetings, and these serve as a useful stake in the ground. We all know that the meeting is coming, which allows everyone to prepare properly and use time productively. Formality is useful in that sense. Outside of that, it’s a flexible format; you’re there as and when needed. AC It takes a little while to find a rhythm – probably not helped by the fact that you inevitably have to focus on some of the governance issues first, whether that be putting in place reporting mechanisms or board structure. But the founder is very unlikely to see that as added value and in fact your actions can be viewed as adding burden at the behest of the investor. PG That raises one of the most valuable roles that a non-exec can play and that is acting as a bridge between management and external investors. Most of the entrepreneurs that BGF backs are taking external investment for the first time and many can’t clearly envisage what’s going to happen afterwards. For any executive board, bringing in an investor means a period of change. Many executives may also accept the non-exec as part of the investment process but they don’t necessarily see beyond that in the early stages. It is often after they’ve cleared that first hurdle that executives will start to think more broadly about the additional value that a non-exec can bring. And that’s when we can really start to make a difference.
Review 2013/14 Investment Report
With BGF now established as the UK’s leading provider of growth capital, it is easy to forget that just three years ago this organisation had not made a single investment. Since opening our doors in 2011, we’ve backed more than 50 exciting businesses, providing crucial capital for the next stages of their growth.
Bright prospects Richard Bishop, Head of Investments The pace of our investments has accelerated sharply over the past nine months. The first half of 2013 may have been quiet, but we made more investments than ever before during the third and fourth quarters of last year. And that pick-up has continued: the first quarter of this year was our busiest three-month period on record. There’s no doubt the macro-economic environment has helped. An economic recovery that has proved stronger than many people expected has boosted the confidence of growing businesses – and encouraged them to think about how to invest in order to drive further growth in the years ahead. At the same time, BGF can be proud of the efforts it has made to ensure many more of these businesses now consider whether growth capital might be the answer. We have worked hard to build awareness of both growth capital and BGF itself. Focused public relations has started to build our brand, but perhaps more fundamentally, we have also been able to spread the message through the sheer numbers of companies we meet – last year alone, we talked to more than 800 businesses. Not all of those companies are suitable for investments today, or even seeking funding. But each conversation is a chance to explain why growth capital – forgotten during the years when debt was so freely available – can be such a powerful tool for the right business. And each investment we make further
BGF invested growth capital £49.1m £41.7m
£11.7m £3.1m 2011 Q4
enhances the credibility of BGF. The relationships we are building also prove crucial in helping us build a pipeline of investment opportunities. Businesses that we spoke to in years one and two, say, may not have been ready for investment at the time, but may become so in years four and five. That cycle will continue: I see it as creating an ‘annuity’ that provides a constant stream of new opportunities. Our origination processes are maturing too. So far, companies have been most likely to come to us via the banks – both those that provide us with funding and others – or through national and local advisers such as their accountants. But other types of introduction are becoming increasingly important. A third of the businesses we invest in today are those we found ourselves, and our direct origination team are increasingly adept at leveraging our experience in order to identify the companies that will benefit most from growth capital.
In years ahead, we also hope to meet more businesses via our Talent Network, the growing number of talented and experienced individuals we’re talking to about passing on their expertise to portfolio companies through non-executive director roles. We will get more referrals from these companies – what better recommendation could there be than from a business in which we have already invested? Still, these investments take time, as we get to know potential investee companies and, just as importantly, they get to know us. On average it takes 31 weeks between our first meeting with management and completion. We could complete many of these investments much more quickly, but companies rightly want to be sure they’re making the right decision – growth capital is a long-term investment. The key is that we all feel absolutely comfortable with one another: growth capital is about building an enduring
Review 2013/14 Investment Report
Randy Weeks, Chief Executive Andrew Clift, Executive Chairman Palmer Hargreaves
Birmingham Gavin Petken, Regional Director – Midlands partnership. Indeed, we often make further investments in our portfolio businesses, when their growth requires additional capital. We’ve already made over £20m worth of such investments and this will become an increasingly significant activity. We will also continue to make new investments, of course – and in an increasingly broad range of businesses. One notable feature of the deals we have done over the past year, and those nearing completion, is their geographical diversity. We are now seeing the number of opportunities grow quickly in all five of the regions in which we invest. That breadth now needs to be replicated across every sector of the economy. For example, we have had less engagement with manufacturing companies than we might have expected given the capital intensive nature of many such businesses; that may reflect a more cautious approach in this sector – in which case a sustained economic recovery should help. Overall, however, we are confident 2014 will prove to be another very significant year of growth for investment and that 2015 will be better once again. If we continue to see controlled and confident growth in the macroeconomic environment, there is every reason to think the outlook is really exciting – both for BGF itself and for the companies in our portfolio.
A large geographical area, the Midlands houses some 1,800 companies that are currently turning over £5m-£100m – many of which are concentrated in the West Midlands, Birmingham, Nottingham and Milton Keynes. The business community is more fragmented outside these major hubs although it has been shaped by Science Parks in Warwick, Aston and Coventry as well as clusters such as automotive technology in Northamptonshire, and ceramics in Staffordshire. There is evidence to show that good businesses are prospering in the region: currently there are some 450 small and mid-sized businesses in the Midlands that have grown by at least 33% in the last three years. To date, we have met approximately 300 of these businesses and are working hard to build strong relationships with them so that we are ready when they feel they could benefit from growth capital. In the last fifteen months, we have also held more than 250 meetings with banks and advisers, resulting in numerous introductions. The diverse and unconnected geographies in this region do present an obstacle to widespread awareness and therefore the need to make a case for equity investment and a direct impact on local entrepreneurs is all-important. Our Talent Network is also a significant source of potential with many highly experienced non-executives residing in the region. There is a long way to go but we have
to date invested £41m in eight local businesses, which collectively employ over 1,000 people. Earlier this year we provided £4m of capital to Palmer Hargreaves, a marketing and communications agency based in Leamington Spa, enabling it to fund acquisitions in the UK and Germany and expand into China and Brazil. We have also backed two family businesses. In April, we invested £3m into Dudson, a ninth generation family business and one of the oldest in the UK, which produces ceramic tableware from its manufacturing facility in Stoke on Trent; and in March, we provided £2.8m to one of the UK’s leading independent cycling retailers, Rutland Cycling in order to support a national expansion plan. Our recent investments are indicative of how BGF can offer flexibility in the way that it structures investment to meet the needs of shareholders. Dudson’s motivation is to invest in the business so it is in the best possible shape for future generations. Our capital is long term, unsecured, and flexible; and there is no pressure for the business to move outside of family control. This is an approach that should resonate with many family businesses. It is clear that the region houses a good level of growing businesses and with a large addressable market for investment. We would like to see these companies fulfilling their potential by taking on investment from BGF and other suitable sources.
Review 2013/14 Investment Report
Richard Freedman, CEO ACS Clothing
Lawrence Bourke, CEO Task-Fronterra Group
Aberdeen and Edinburgh Simon Munro, Regional Director – Scotland Comprising 32% of the UK’s landmass yet with just 8.4% of the UK’s population, Scotland generates 8% of the UK’s GDP. Most businesses are clustered in the central belt, between Glasgow and Edinburgh, and in the North East around Aberdeen. Traditionally, Glasgow was the centre for manufacturing and engineering in Scotland, although those industries are in long term decline, and Edinburgh is the country’s financial and administrative hub. The oil and gas sector, along with its related service industries, is concentrated around Aberdeen, stretching from Inverness in the north, down to Dundee. BGF’s Scottish team operates from two offices in Edinburgh and Aberdeen. There are 1,124 companies in Scotland with revenue of £3m to £100m. Of these, 479 have revenue between £3m and £10m while 129 have revenue of more than £40m. Energy, including renewables, and manufacturing make up more than 50% of Scotland’s GDP, with other large contributors being financial services, construction, retail, food and drink, tourism, creative industries and spirits. The current topic on the nation’s lips is the Scottish independence referendum, which could throw up many challenges for business. On 18 September, the people of Scotland will decide whether to remain part of the United Kingdom. This momentous decision will have implications whichever way the ballot goes. Since inception, BGF has met more than 200 companies in Scotland. At the time
of writing, BGF has invested more than £70m between 13 Scottish companies. The growth capital investments have varied in size from £2.25m to £10m. More than 700 people are employed across the portfolio with an average of 87 employees per company. The smallest turnover in the portfolio is £4m and the largest is £37m. Several factors are working to our advantage. The business community is really starting to notice BGF and, given Scotland’s oil and gas services, we have a golden opportunity to support one of the UK’s world-leading industries. Our business model of offering long term and flexible capital also appeals to family businesses, a category which makes up 73% of all Scottish companies, and includes 41 of the top 100 businesses in Scotland. “Cracking the code” for family businesses could prove very effective for BGF. Since the turn of the year, we have announced five new deals representing a growth capital investment of £27.7m in Scotland in 2014. The first Scottish investment this year was in Europe’s largest independent supplier of formal hirewear, ACS Clothing, providing £8.5m growth capital to expand its operations and facilitate investment in its multichannel offering for its retail partners. Our latest investment during April supported the combination of two leading geoscience businesses, both focused on the oil and gas sector. Aberdeenheadquartered Task Geoscience and Houston-headquartered Fronterra
Integrated Geosciences joined forces to become a global geoscience consultancy – the Task-Fronterra Group. TaskFronterra received a financial injection of £3.8m of growth capital investment from BGF. With more than £70m already invested, we believe Scotland is a market that can sustain at least eight deals a year, and £40m to £50m of profitable investment.
Review 2013/14 Investment Report
Colin Stevens, Founder Better Bathrooms
Jon Wright, Founder and CEO, Xercise4Less
Manchester and Leeds Andy Gregory, Regional Director – North, North West & Northern Ireland Despite challenging macro-economic conditions, some 17% of the mid-sized SMEs based in the North of England are currently demonstrating high levels of growth – or in other words, have grown by at least 33% in the last three years. These figures give a sense of the vibrant community of entrepreneurial SMEs operating across a diverse range of industries in the North of England. However it also highlights that there is more to be done to help SMEs in this region achieve more growth, and faster – and this is very much our focus for 2014 and beyond. Over the last 15 months, a total of £58m of growth capital has been invested in the North of England – and five of these investments have been funded by BGF. Since January 2013, we have put £35m to work in five exciting companies from varied sectors. In July 2013, we backed Better Bathrooms, one of the UK’s leading bathroom retailers. Our investment is helping the £32m turnover business to explore alternative suppliers and expand into new markets. This was followed by our investment into the UK market leader in the specialist production of retailer fliers, media inserts and quality catalogues, York Mailing. The company has already used BGF’s equity investment to fund the acquisition of The Lettershop Group, with the combined business now turning over £100m. In August 2013, we invested £5m to support the 5-year roll-out plan of Xercise4Less, one of
the UK’s most successful low cost gym chains. Our latest investments were made into VTL Group, a £50m turnover Huddersfield based manufacturer of precision components for the automotive industry; and Medicina, a Bolton based medical devices company. Both companies will be using the capital to support expansion in the UK and into international markets. Collectively these businesses employ over 1,000 people, with the potential for many more as they continue to grow. Our existing portfolio companies have also been active. Springfield Healthcare Group made two complementary acquisitions in the domiciliary care sector and award-winning Barburrito opened its ninth outlet in Nottingham, following recent openings in Paddington train station and Leeds. Boost Juice Bars also opened four news outlets in Brighton, Newcastle, Peterborough and a second in Manchester’s Trafford Centre centre. Support does not come in the form of finance alone. BGF’s talent network has been active in identifying highly experienced non-executive directors and chairmen to work with the companies that we have backed. For example, in the last year, we have seen Michael Baunton the former CEO of the Society of Motor Manufacturers and Traders (SMMT) and President of both Tenneco, and Perkins Engines join VTL; and Gavin Mould join Medicina – both in the roles of NonExecutive Chairman. While we are currently one of the most
active investors of long-term growth capital in the region, we are working hard to build on this momentum and continue supporting local businesses with ambition to grow. For this reason, we have expanded our own team in Manchester and Leeds, which now includes nine investment professionals. We are also ramping up in key secondary markets such as Newcastle and Sheffield and strengthening our links to locally based companies, banks and advisers. The pipeline looks encouraging for the year ahead. Key priorities are to continue raising awareness and understanding of the BGF offering across the wider region and to increase the funnel of potential investment opportunities.
Review 2013/14 Investment Report
SHS Integrated Services
Bristol Paul Oldham, Regional Director – South West & South Wales In April of this year, BGF’s Bristol based team made its eighth investment in Skyscape Cloud Services, bringing its total invested in entrepreneurial growth companies located in the South West and South Wales to £36m. Skyscape designs, builds and operates its own secure cloud specifically for the public sector and is at the forefront of the Government’s drive to move its infrastructure to an efficient and, therefore cheaper, cloud based solution. Savings of up to 80% are achievable, making this one of the public sector’s flagship projects. This company sits alongside a diverse range of other, equally exciting, regional businesses that we have backed, including: Barry based industrial services provider, SHS; telecoms business Sub10 Systems, which is located in Devon; and Bristol’s children’s travel products brand, Trunki. The strength of this expanding portfolio is evidenced by businesses like Reading based Bullitt Group, a market leader in the design and manufacture of branded, high durability mobile phones for both the consumer and industrial sectors, which we backed in 2012 with £3.5m. Bullitt has built a global infrastructure capable of supporting orders from the world’s leading mobile network operators and its sales trebled in 2013. Bullitt has the potential to become a major international provider of branded mobile devices. There are currently about 3,500 companies in the region turning over
between £2.5m–£100m, and roughly 17% of these are demonstrating high levels of growth (at least 33% over the last three years). To date, we have met more than 200 of these businesses. The region is strong in a number of sectors, such as aerospace, defence, advanced manufacturing, IT services and food manufacturing. We have seen a marked increase in enquiries since January and expect to have a successful investment year. The area, which is diverse and geographically unconnected, features a large, complex banking structure, and this year we will have attended more than 200 meetings with members of this community, resulting in some 60 new introductions. But, overall 2013 yielded fewer adviser-led deals than 2012 and we consider it critically important that we build relationships with more locally based accountants and boutiques – as well as direct with corporates. The inflow of enquiries from South Wales has been notably low, despite the groundwork that we have laid with the local advisory community and companies. As a generalisation, South Wales’ businesses are showing a lower propensity to seek equity funding, compared to the South West of England. BGF responds to demand and we are actively encouraging Welsh businesses to approach us. We are keen to raise awareness of our proposition, and also of the significant benefits provided by growth capital and how an external
partner can contribute real value to an expanding enterprise. To this end, it is important that we work closely with Finance Wales, the CBI, Industry Wales and the IOD to engender trust and confidence within the local business community. Our investment in SHS has shown how an ambitious management team can achieve growth using our funding.
Review 2013/14 Investment Report
Graham Hacon, CEO, 3sun Group
Steve Feigen, CEO, Abacus e-Media
London Marion Bernard, Regional Director – London & South East I am encouraged by the breadth and depth of our investment activity over the past 15 months, which has demonstrated our continued commitment to helping the region’s companies grow and take advantage of the opportunities presented by the current economic revival. As a region, London and the South East has distinct challenges and significant opportunities for investors. I am happy to report that the opportunities far outweigh the challenges. With c.15,000 companies generating £2.5m–100m turnover, the scope for backing exciting, growing businesses in our region is huge. I firmly believe we are beginning to capitalise on this opportunity. The region is certainly diverse in terms of company sector and size, and with that comes the challenge of identifying which businesses are ready for our investment and have the ambition to grow further, and those which may not quite be at the right stage in their development. Geographically, we have met with businesses from Guildford in the west to the Kent and Suffolk coasts in the east, and from Peterborough in the north to Brighton in the south. Although London remains the vibrant core of our region, our recently completed investments in 3sun Group, a specialist provider of products and services to the global energy industry based in Great Yarmouth, and Thames Card Technology, an Essex-
based manufacturer of plastic cards, demonstrate that awareness of BGF outside London is spreading. We are also seeing considerable opportunities in other centres of industry such as Cambridge. In London and the South East we now have a team of 14 investors; a dedicated team with local knowledge, contacts and experience is critically important. We have backed 14 companies to date with £80m of growth capital across the region, with strong momentum building quarter by quarter. The diverse range of sectors is understandably rich in TMT (25%), business and support services (23%), consumer and leisure (21%) and manufacturing (17%). TMT remains our busiest sector having backed incredibly exciting and dynamic businesses such as The Exchange Lab, Broadbandchoices. co.uk, Unruly Media, Workshare and Abacus e-Media. London and the South East also differs from most other regions in both the size and fragmentation of the advisory ecosystem available to smaller and mid-sized firms. In fact there are so many different firms, promoting alternative funders and alternative funding structures, or offering sector specialism or niche expertise, that it difficult for even industry insiders to keep up.
As an investor who is seeking to complement the market by focusing not only on providing flexible investment structures not offered by other firms, but also by co-investing alongside them, we set up the BGF Quarterly Growth Capital Drinks as a networking event for all advisers and investors based in London and the South East. These gatherings, most often held at one of the restaurants in which we have invested, are growing in size and popularity and demonstrate the potential of this region to support many companies with growth capital. If you would like to come along, please do get in touch.
Review 2013/14 The Board
The Board CHAIRMAN SIR NIGEL RUDD: Sir Nigel is best known as founder of Williams plc in 1982, which went on to become one of the largest industrial holding companies in the United Kingdom until its demerger in November 2000, creating Chubb plc and Kidde plc. He is presently Chairman of Heathrow Airport Holdings Limited, BAA Aviation plc and the UK Business Angels Association. Sir Nigel was knighted in 1996 for services to manufacturing. He has a long record as an active angel investor in small and mediumsized businesses, and has been Chairman of some of Chairman the largest companies in the UK, including Invensys, Pilkington, Alliance Boots and the UK’s largest car retailer, Pendragon, the company he founded with one dealership in 1982. He was a Director of Barclays PLC for 13 years, latterly as Deputy Chairman. Sir Nigel became Chairman of BGF in February 2011. CEO STEPHEN WELTON: Stephen chairs BGF’s Investment Committee. He has over 20 years’ experience in the development capital and private equity industry. He joined BGF after 10 years with CCMP Capital (formerly JP Morgan Partners) a global private equity firm. He has extensive experience as an investor working with private companies, most recently as Chairman of Edwards, the global engineering group headquartered in the UK. Before this, he was Chairman and CEO of TV Travel Shop prior to its successful sale to a global media group. He has 10 years of UK private equity and growth capital experience as Managing Director of Barclays Private Equity and at Henderson Ventures, which he co-founded. In January 2013, Stephen joined the advisory group formed specifically to guide the UK Government on the direction and priorities of the proposed Business Bank, a Government funded institution looking to provide lending and support to small and mid-sized businesses. Stephen started his career in banking and is a qualified Barrister-at-Law. Stephen was appointed Chief Executive of BGF in February 2011. Director of Risk & Finance Matthew Reed: Matthew Reed joined BGF in March 2011 and joined the Board in 2013. He is responsible for BGF’s regulatory, finance and operational functions, risk and corporate governance oversight. Matthew was educated in Australia where he obtained his Chartered Accountant qualification. Matthew has held a number of Chief Financial Officer roles with private equity firms including, CCMP Capital Partners UK, Trilantic Capital Partners and Santander Infrastructure Capital. Prior to this Matthew worked for JP Morgan Chase for six years, where he held financial controller positions in both Luxembourg and London, and later acted as Global Product Controller in the bank’s Worldwide Security Services business.
DIRECTOR OF RISK & FINANCE
Review 2013/14 The Board
Independent Non-Executive Directors
1 AUDREY BAXTER: Following a successful early career as a merchant banker in London, Audrey returned to the family business, Baxters, in 1988. She became Chairman and CEO in 2000. Baxters was founded in 1868 and Audrey is the fourth generation of the family to run and expand the business into new markets. Today, Baxters is a global company, with operations in Eastern Europe, Australia, South Africa, and North America. Since becoming CEO Audrey has grown the business by more than 50%, and annual turnover currently exceeds £150m. Audrey is also a member of the Court of Aberdeen University.
5 TIM BOAG (RBS): Tim is responsible for the UK lending activities in areas such as acquisition finance, energy, infrastructure and public sector. Tim began his career as a graduate with NatWest and has fulfilled a number of roles across RBS Group. He has worked in both the Corporate and Investment Banking areas, and was Finance Director of the Global Structured Finance Business in 2005/6. Tim is actively involved in sponsoring a number of pan-RBS and divisional initiatives, including the development of professional standards with the Chartered Banker Institute and supporting enterprise.
2 JOHN BURGESS: John has had a long and distinguished career as a private equity investor, during which he was a non-executive director of a number of UK and European-based businesses, both large and small. He is currently Chairman of the External Investment Committee of Partners Capital, a wealth management firm, and a non-executive director of C&C Group, which owns the Magners and Gaymers cider brands and Tennent’s beer. He was a co-founder and Managing Partner of BC Partners until he retired in 2005. BC Partners is a leading European private equity firm that has played a major role in the development of the large buy-out market in Europe over the last 25 years. Prior to BC Partners, John developed his private equity experience with Candover Investments and F&C Ventures, following eight years with the Boston Consulting Group in Paris and London.
6 JAMES CHEW (HSBC): James is Group Head, Regulatory Policy & Development in the Financial Services Policy Unit. After joining the HSBC Group in 1993 James worked in joint ventures, including with BSkyB for the launch of digital television in the UK. James has been both Group Head of Planning and Group Head of Acquisitions and Disposals. Amongst other transactions, he was a key player in HSBC’s disposal of the French Regional Banks in 2008 for $3.2bn. As part of the Business Finance Taskforce in the UK, James was the interim CEO responsible for the establishment of BGF.
3 NEIL JOHNSON: Neil is currently Chairman of Synthomer plc and e2v plc. He also chairs Motability Operations plc, a major finance and leasing company owned by the UK banks. Neil was formerly CEO of the RAC, and chaired telematics company Cybit Plc through IPO and ultimate sale to a US Private Equity house in 2010. After directing the European automotive interests of British Aerospace, he served a term as director general of the Engineers Employers Federation and later set up a transatlantic trade and business promotion body, British-American Business Inc. Following an early career in the Army he began his business career with a series of roles within Lex Service Group, British Leyland, Jaguar and Land Rover. Neil also sits on a Ministry of Defence Advisory Board. Neil is the senior independent director on the BGF Board and was, until 2012, an Independent Member of the Metropolitan Police Authority. 4 STEPHEN MURPHY: Stephen Murphy currently serves as Chairman of Jumeirah Group LLC, the major international UAE based luxury hospitality company, and Chairman of The Garden Centre Group, the UK’s largest horticultural retailer and Chairman of The Learning Clinic Ltd, an innovative medical technology company based in the UK. He is also a non-executive director of Ren Ren, a major China based, NYSE listed social networking company and as an Advisory Partner at Ashcombe Advisers LLP, a boutique corporate finance advisory firm. Mr. Murphy is also the Principal of his own advisory business. Stephen previously served as the Group CEO of The Virgin Group from 2005 to 2011, having held a number of senior positions within Virgin included serving as Chief Financial Officer from 1994–2000 and as Chairman of Virgin Atlantic from 2006 to 2012.
7 RICHARD HOLMES (Standard Chartered): Richard Holmes is CEO Europe, a position he has held since 2008. Prior to this, he was Chairman and CEO of American Express Bank Ltd., American Express Company’s international banking subsidiary, based in New York. Richard has more than 30 years’ experience across a wide range of functions in international banking, having served in finance, operations and financial market positions at Wells Fargo Bank and at Bank of America. Richard is Chairman of the CBI’s Financial Services’ Council, sits on the Board of Trustees for Asia House and is a member of the Board of Directors of British American Business. 8 ALAN TURNER (Barclays): Alan co-heads the management of the suite of products and services offered by Barclays PLC throughout the world via its Corporate Banking division. He is a member of the Executive Committee of the Corporate Bank and the Group Credit Committee of Barclays Bank. Alan joined Barclays in 1991 and has held a variety of roles within the retail, corporate and investment banking divisions of the firm. Prior to his current role, he managed the lending arm of the Corporate Bank and previous roles included leveraged finance and high yield bond origination in London, head of the leveraged finance business in Asia Pacific and a number of structuring roles within the syndicated loans group in London, Asia and Australia. 9 KAREN BOTHWELL (Lloyds Banking Group): Karen leads the Regulation & Governance teams within Lloyds Banking Group’s (LBG) Commercial Banking Credit Risk function. The role includes governance & assurance responsibilities for LBG’s Commercial Banking credit processes, regulatory interpretation and risk oversight of the LBG private equity portfolio. A qualified lawyer, Karen has worked within Bank of Scotland and LBG since 1987, in roles within Legal, Structured Finance, Joint Ventures and Growth Capital Investment. Karen is also a Fellow of Chartered Institute of Bankers (Scotland).
Review 2013/14 The Portfolio
Our investment portfolio At 25 June 2014
Region: London & South East
Products and services for global energy industry Sector: Energy BGF investment: £10m Turnover: £20–30m Company location: Great Yarmouth Investment date: March 2014 www.3sungroup.co.uk
Provider of web content management systems and audience development platforms Sector: Media BGF investment: £2.25m Turnover: £5–10m Company location: London Investment date: August 2013 www.abacusemedia.com
Price comparison website and software for consumer broadband, TV and telecoms Sector: Media / Software and Computer Services BGF investment: £10m Turnover: £10–15m Company location: London Investment date: September 2012 www.broadbandchoices.co.uk
London based group of authentic Spanish tapas bar-restaurants Sector: Food Retailers, Producers BGF investment: £3m Turnover: £5–10m Company location: London Investment date: December 2012 www.camino.uk.com
One of the UK’s leading independent arts materials retailer Sector: Retail BGF investment: £3.2m Turnover: £5–10m Company location: London Investment date: December 2013 www.cassart.co.uk
Peyton and Byrne
Specalist ATM products and services Sector: Support Services BGF investment: £5m Turnover: £5–10m Company location: Camberley, Surrey Investment date: June 2012 www.cennox.com
Drainage contractor Sector: Support Services BGF investment: £3m Turnover: £5–10m Company location: Rayleigh, Essex Investment date: May 2014 www.flowlineltd.co.uk
Branded public catering, restaurant and bakery business Sector: Food Retailers, Producers BGF investment: £6.25m Turnover: £20–30m Company location: London Investment date: December 2012 www.peytonandbyrne.co.uk
Thames Card Technology
Global IT consulting and project management company Sector: Support Services BGF investment: £8.7m Turnover: £30–50m Company location: London Investment date: October 2013 www.ptsconsulting.com
Travel management for corporate and private clients Sector: Travel & Leisure BGF investment: £4.25m Turnover: £90–100m Company location: London Investment date: October 2011 www.statesmantravel.com
Plastic card manufacturer Sector: Support Services BGF investment: £3.2m Turnover: £15–20m Company location: Rayleigh, Essex Investment date: December 2013 www.thamescardtechnology.com
The Consulting Consortium
The Exchange Lab
Independent regulatory consultancy Sector: Professional Services BGF investment: £10m Turnover: £15–20m Company location: London and Leeds Investment date: March 2014 www.theconsultingconsortium.com
The world’s largest programmatic digital media marketplace. Sector: Media BGF investment: £5m Turnover: £5m–10m Company location: London Investment date: November 2013 www.theexchangelab.com
Social video distribution Sector: Media BGF investment: £4m Turnover: £15–20m Company location: London Investment date: December 2011 www.unrulymedia.com
Workshare Cloud enabled document collaboration software Sector: Software and Computer Services BGF investment: £7.44m Turnover: £10–15m Company location: London Investment date: September 2012 www.workshare.com
Software automating the handling of inbound information streams into and through organisations Sector: Software and Computer Services BGF investment: £2.5m Turnover: less than £5m Company location: Milton Keynes Investment date: December 2012 www.celaton.com
Review 2013/14 The Portfolio Dudson
Producer of ceramic tableware for the travel and hospitality industry Sector: Household Goods BGF investment: £3m Turnover: £20–30m Company location: Stoke-on-Trent Investment date: April 2014 www.dudson.com
Integrated telecoms and data services Sector: Telecoms BGF investment: £10m Turnover: £50–55m Company location: Lincoln Investment date: January 2012 www.gcicom.net
Marketing and communications agency Sector: Media / Professional Services BGF investment: £4m Turnover: £5–10m Company location: Leamington Spa Investment date: December 2013 www.palmerhargreaves.com
Independent cycle retailer Sector: Retail BGF investment: £2.8m Turnover: £10–15m Company location: Rutland Investment date: March 2014 www.rutlandcycling.co.uk
Specialist footcare provider and retailer Sector: Retail BGF investment: £3.75m Turnover: £15–20m Company location: Coventry Investment date: September 2012 www.shuropody.com
Provider of estate management and landscape installation, design and consultancy services Sector: Support Services BGF investment: £10m Turnover: £20m–30m Company location: Northamptonshire Investment date: May 2014 www.tclgrp.co.uk
Wow! Stuff Toy development and distribution Sector: Consumer Goods BGF investment: £5.77m Turnover: £10–15m Company location: Wolverhampton Investment date: March 2012 www.wowstuff.co.uk
Region: North, North West & Northern Ireland
Fast-casual Mexican restaurants Sector: Food Retailers, Producers BGF investment: £6.8m Turnover: £5–10m Company location: Manchester Investment date: March 2012 www.barburrito.co.uk
Boost Juice Bars
Online and high-street bathroom retailer Sector: Retail BGF investment: £10m Turnover: £30–50m Company location: Warrington Investment date: July 2013 www.betterbathrooms.com
National chain of juice bars Sector: Food Retailers, Producers BGF investment: £2.5m Turnover: less than £5m Company location: Manchester Investment date: December 2012 www.boostjuicebars.co.uk
Medical devices company specialising in enteral feeding Sector: Healthcare Equipment & Services BGF investment: £6m Turnover: £10–15m Company location: Bolton Investment date: December 2013 www.medicina.co.uk
Springfield Healthcare Group Springfield Homecare Domiciliary healthcare provider in Yorkshire and Humberside Springfield The Grange Residential care home and private independent living
VTL Sector: Healthcare Equipment & Services BGF investment: £5.1m Turnover: £5–10m Company location: Leeds Investment date: June 2012 www.springfieldhealthcaregroup.com
Manufacturer of precision engineered components for the automotive industry Sector: Automobiles & Parts BGF investment: £4m Turnover: £50–75m Company location: Huddersfield Investment date: September 2013 www.vtl-group.com
Freehold community pub estate Sector: Travel & Leisure BGF investment: £8m Turnover: £5–10m Company location: County Durham Investment date: May 2012 www.wearinns.co.uk
Low-cost gym group Sector: Travel & Leisure BGF investment: £7m Turnover: £5–10m Company location: Leeds Investment date: August 2013 www.xercise4less.co.uk
Specialist production of promotional print materials Sector: Media BGF investment: £10m Turnover: £75–100m Company location: York Investment date: July 2013 www.yorkmailing.co.uk
Independent supplier of formal hirewear Sector: Retailers BGF investment: £8.5m Turnover: £10m–£20m Company location: Glasgow Investment date: January 2014 www.acsclothing.co.uk
Fancy dress & party fashion, including Morphsuits Sector: Consumer Goods BGF investment: £4.2m Turnover: £10–15m Company location: Edinburgh Investment date: June 2012 www.morphsuits.co.uk www.foulfashion.co.uk www.royalandawesome.co.uk
Review 2013/14 The Portfolio
Duncan and Todd
Scotland’s leading manufacturer of luxury toiletries, lifestyle products and gifts Sector: Consumer Goods BGF investment: £2.8m Turnover: £5–10m Company location: Isle of Arran Investment date: August 2013 www.arranaromatics.com
Specialist cementing and stimulation chemicals used in drilling and preparing wells for production Sector: Energy BGF investment: £2.25m Turnover: <£5m Company location: Aberdeen Investment date: February 2012 www.aubin.co.uk
Independent chain of opticians Sector: Retail BGF investment: £5.6m Turnover: £10–£15m Company location: Aberdeen Investment date: December 2013 www.duncanandtodd.com
M Squared Lasers
The leading Oracle Reseller and Platinum Partner in Europe, the Middle East and Africa Sector: Software and Computer Services BGF investment: £10m Turnover: £20–30m Company location: Aberdeen Investment date: September 2013 www.inoapps.co.uk
R&D Tax Credit assistance for UK businesses Sector: Professional Services BGF investment: £3.4m Turnover: £10–15m Company location: Edinburgh Investment date: February 2014 www.jumpstartuk.co.uk
Design and manufacture of lasers and photonic optical instruments Sector: Technology Hardware & Equipment BGF investment: £3.85m Turnover: <£5m Company location: Glasgow Investment date: April 2012 www.m2lasers.com
Network support services to UK mobile telecoms sector Sector: Telecoms BGF investment: £7m Turnover: £30–50m Company location: Glasgow Investment date: March 2014 www.monoconsultants.com
Software developer for hazardous industries Sector: Software and Computer Services BGF investment: £6m Turnover: £10–15m Company location: Aberdeen Investment date: May 2013 www.petrotechnics.com
Services & products for sub-sea and downhole environments in oil and gas industry Sector: Energy BGF investment: £5m Turnover: £10–15m Company location: Aberdeen Investment date: March 2014 www.spex-innovation.com
Isolation services for onshore and offshore oil and gas pipelines Sector: Energy / Industrials BGF investment: £7.8m Turnover: £15–20m Company location: Aberdeen Investment date: March 2012 www.statsgroup.com
Global geoscience consultancy focused on the oil and gas sector Sector: Energy BGF investment: £3.8m Turnover: £10–15m Company location: Aberdeen Investment date: April 2014 www.taskgeoscience.com
Region: South West & South Wales
Software supporting online employee reward and benefit schemes Sector: Software and Computer Services BGF investment: £5.8m Turnover: £5–10m Company location: Southampton Investment date: October 2011 www.benefex.co.uk
Design and manufacture of high quality, high durability mobile phones for both the consumer and industrial sectors Sector: Electronic & Electrical Equipment BGF investment: £3.5m Turnover: £10–15m Company location: Reading Investment date: December 2012 www.bullitt-group.com
Design and manufacture of high performance carbon fibre pipe for subsea oil and gas applications Sector: Energy / Industrials BGF investment: £8.82m Company location: Portsmouth Investment date: December 2012 www.magmaglobal.com
SHS Integrated Services
Online retailer of garden products Sector: Retail BGF investment: £4m Turnover: £15–20m Company location: Reading Investment date: May 2012 www.primrose.co.uk
High specification industrial scaffolding services Sector: Support Services BGF investment: £5.4m Turnover: £15–£20m Company location: Barry, Wales Investment date: September 2012 www.shs.uk.com
Provider of cloud infrastructure services to the UK public sector Sector: Software and Computer Services BGF investment: £4m Turnover: £5–£10m Company location: Farnborough, Hampshire Investment date: April 2014 www.skyscapecloud.com
Specialist developer of class-leading millimetre wave wireless solutions for mobile telecoms Sector: Telecoms BGF investment: £2.5m Turnover: £5–10m Company location: Newton Abbot Investment date: November 2013 www.sub10systems.com
Designer and manufacturer of innovative, multifunctional travel products for children Sector: Consumer Goods BGF investment: £3.92m Turnover: £5–10m Company location: Bristol Investment date: April 2013 www.trunki.com
Get in touch Business Growth Fund has been established to help Britain’s growing, smaller and medium sized businesses. Growth potential is the key criterion. BGF will invest between £2m and £10m per business in return for a minority equity stake and a seat on the board for a BGF director. BGF has up to £2.5bn with which to make long-term equity investments in growing companies across the UK that today do not have access to this source of capital. BGF is an independent company, backed by five of the UK’s main banking groups – Barclays, HSBC, Lloyds, RBS and Standard Chartered. BGF also works closely with other key business organisations. BGF has specifically been set up on a local basis to be close to the businesses we invest in. If you want to understand more about BGF or talk about how we might support your business, or your clients, please get in touch with us.
Aberdeen 0845 600 3699 Birmingham 0845 266 8862 Bristol 0845 266 8864 Edinburgh 0845 266 8863 Leeds 0845 600 0142 London 0845 266 8860 Manchester 0845 266 8861 Website www.bgf.co.uk Email firstname.lastname@example.org Twitter @bgf_team
BGF is one of a range of initiatives designed to forge better, more effective relationships between the banking sector and UK businesses. BGF works in close collaboration with the British Bankers’ Association as well as with other key business organisations and government across the UK. BGF is authorised and regulated by the Financial Conduct Authority.