THERE was only a fleeting mention of ‘patient capital’ in Chancellor Philip Hammond’s autumn statement, but the very fact that government are now discussing it is potentially significant.
The government has commissioned a review to address what it believes is a shortage of long-term capital investment in UK firms, something it thinks is stopping some of our brightest start-up businesses from scaling up and fulfilling their true potential.
Patient capital takes the form of investment from investors who are willing to make a financial investment in a business without the expectation of turning a quick profit, instead structuring their investment to get more substantial returns further down the road.
The UK government clearly thinks that there are barriers to accessing this type of funding and not enough funds taking a long term approach.
It is a theme that was explored at The Growth Equity conference, which Carson McDowell hosted alongside Goodbody Stockbrokers in Belfast recently.
Goodbody’s research suggests there are at least 200 Northern Ireland companies that would be attractive investment opportunities for private equity investors and would benefit from the injection of capital.
These include high growth companies looking for funding to expand internationally, mature family owned businesses considering selling to management teams, profitable companies selling minority or majority equity stakes and existing institutional investors seeking an exit.
And there is definite interest in them from a range of private equity funds. Our expert panels included partners from eight successful private equity and development capital funds, who between them managed funds with over £3.5 billion to invest, with several more funds represented in the audience.
Of course, not all of that money is earmarked for a small market like Northern Ireland, but all of the funds who shared insights on raising capital and recapitalisation told us they are keen to invest in Northern Ireland businesses.
We’ve heard that before, but the search for returns is now driving an increased level of investment to private equity funds who are keen to back ambitious companies and, having flown under the radar, Northern Irish companies are beginning to attract the attention of private equity investors from London, Dublin and internationally.
Despite the current challenging business environment, many of our clients continue to look for new growth opportunities and they need capital from a range of sources to accelerate those plans – they maybe just don’t know what the options are.
Northern Irish firms in some sectors would traditionally have been reluctant to take equity investment from external providers, but that has changed and equity is becoming an increasingly attractive option. Several of our clients, such as RiverRidge Recycling, SISAF and Lowe Rental have recently attracted significant investment from major funds.
As Northern Ireland’s economy comes to terms with Brexit and other global economic changes, we will need more of our businesses to scale up and to achieve their growth potential in an accelerated timeframe. That can only happen with access to the right level of funding and greater understanding of what can be gained from taking on equity investment.
Private equity investment is not for every business and not all funds are long term, patient capital investors. But an increasing number are taking this approach and so Northern Irish business owners keen to scale up and accelerate growth should at least investigate whether they take advantage of the increasing appetite to invest in this part of the world.
:: Richard Gray is partner and joint head of corporate team at Carson McDowell
