Jamie Roberts, corporate finance advisory director at Grant Thornton UK LLP, explores the decisions and choices facing business leaders looking to raise funds.
Business leaders are all too conscious of the fact that time invested in trying to raise funds is time away from other critical concerns. Yet funding is a defining challenge that goes hand in hand with growth and there will always be invisible ‘opportunity costs’ due to choices of where internal time and resource is or is not applied.
Management teams often spend a lot of time exploring how, when and where to secure the right backing. They may need it to support operations, launch new products and services to accelerate growth or realise the value of their business.
The advisor’s role here is to help them define the best route forward. In Wales, the depth and breadth of the opportunities within the national economy has meant that at Grant Thornton we’ve continued to invest in our Cardiff-based corporate finance practice. As part of a global network, we know that businesses able to cross borders comfortably with the right connections and approach make for strong, investable propositions.
Private equity and debt-financing options are readily available for the right proposition, even though for the first half of 2023 there remains caution in the market regarding the direction of travel in the wider economy.
Because of this, cash generative businesses operating within clear and defensible markets present an attractive bet for investors in less than certain times. It is certainly the case that whilst there remains a highly liquid investor/lender environment, many are being increasingly selective as we continue to move through a volatile economic environment.
The British Business Bank and others have commented on the fact that equity finance markets are adapting to demand for investment in green innovation with growth in the number of net zero deals outperforming the wider equity market. These deals currently make up 12% of all smaller business equity deals compared to only 5% in 2018, with investment values rising faster.
Among the businesses securing net zero equity deals in recent years is QLM, a Cardiff-based tech firm which developed a new technology to fix methane leaks in oil and gas extraction. The funding came from the Green Angel Syndicate, which benefits from British Business Bank backing through its Regional Angels Programme.
Wales and the South West of England are not overly represented on the ground in terms of PE houses based here, apart from a couple of notable exceptions. However, the lack of teams based in Cardiff or Bristol does not necessarily reflect negatively on either: centralisation is popular for some, whilst others prefer a decentralised, relationship led approach.
Perceptions of private equity matter in other ways. One of our roles is to make sure that when introducing companies to PE the right questions are asked and the best fit is found. The business needs to be clear about what it wants from an investor and have the same clarity about what’s not required. It is not unusual for these perspectives to change over the course of a process. By talking to a number of PE houses, with different levels of experience, sector knowledge and approach, a more rounded understanding of what could work best is formed.
There are approximately 262,800 enterprises active in Wales and while there are some that believe the Welsh economy has not seen the transformational benefits promised by devolution, for those of us living here and working in corporate finance there is still a lot of opportunity out there.
While some market analysts believe there is a lot of negativity about Wales Plc and acknowledge that we are currently being tested as a country, these challenges exist elsewhere too. The important question remains not if the crisis will pass – as it will – but which business leaders will have secured an approach that protects shareholder value and enables them to thrive when the economy is back up and firing on all cylinders.
