How the Central South’s success stories are driving growth
In the second of a series of articles from accountants and business advisors, BDO LLP, we look at the growth strategies being deployed by Central South businesses.
Given the backdrop of rising costs, high inflation and geopolitical instability, growth has been more difficult to achieve in recent years. Even though this has eased, businesses striving for growth in the current economic environment need to be specific about their strategy and what might provide the catalyst to unlock expansion.
In our most recent Economic Engine survey of 500 mid-market businesses, 35% of Central South companies said they are planning to explore private equity (PE) or VC investment to scale-up in the next one-to-three years.
Helen O’Kane, Deal Advisory Partner – M&A, considers how private equity could be the catalyst to supercharge growth.
The Central South is an exciting region to do business and has many young and ambitious businesses looking to establish and grow here. We’re also home to a significant number of high-quality multi-generational companies which reach a point when they want to go through the next growth phase and achieve scale.
The key to successfully achieving a business’ ambitions is navigating the funding process to find the right match in an investor. The first step towards a successful PE partnership is understanding what it means for you and your business. A PE investment will often also involve an element of debt funding.
It will stand a business in good stead to get ahead on the timeline and be as ‘deal-ready’ as possible when having early-stage meetings with investors. It’s also a gamechanger to put a well-rounded management team in place and give them the mandate to lead the business so PE is backing that team and their appetite to grow beyond a deal.
The Central South benefits from an ability to attract high-quality people given our location, proximity to London and being a great place to live. Investors are typically looking for a track record of growth, as well as a future expansion thesis to get behind, so having high-quality management information is valuable. If a business is in a sector which is ever-changing, such as tech or compliance, the future growth opportunity may be clear. For some businesses, buy and build can also be a good growth thesis for PE to get behind if a focused acquisition strategy is deliverable. International expansion may also be part of a growth strategy and could be very attractive to private equity if it is possible to do the necessary due diligence.
Overall, if PE is the route you’d like to take, it is about finding the right fit investor as you will need to deliver against shared growth ambitions in future. Get advice from people who have been on the journey and talk to an adviser who can help you manage the steps to success.
Arbinder Chatwal, partner at BDO in Southampton, looks at where Central South companies can find international expansion.
BDO’s most recent Economic Engine research revealed a third of companies will look to scale-up through organic international growth and 55% of Central South businesses are attracted by opportunities in emerging markets, which is higher than any other UK region.
While the reason for why the Central South bucks this trend isn’t entirely clear, there is a palpable ambition in the region to do business with the rest of the world. Historically, UK businesses have looked towards the US for growth and indeed we’ve seen some significant US private equity investment into businesses in the Central South.
The US is always going to be a consideration because of the scale of opportunity, the common language and cultural relativity. However, it’s a difficult market to crack. Success balances on a business’ ability to be able to invest in an on-the-ground presence to meet suppliers, customers and show a commitment to the US market.
It’s interesting to see that more than half of businesses are attracted by opportunities in emerging markets which can often feel further outside of a company’s comfort zone. However, the agenda is being forced. Tariffs associated with doing business in the EU Zone and the additional red tape cost have made European expansion less attractive.
There is a limitation to UK growth and global supply chains are moving to the likes of India and Indonesia, driven by the scale of opportunity as opposed to cost savings. India has a growing economy with political stability, and more than half of India’s population will soon be middle class. We’re also moving closer to an India-UK Free Trade Agreement.
The Central South is well-placed with support from globally networked banks, advisers, and strong universities that have wider initiatives to forge global links. The University of Southampton’s India Centre for Inclusive Growth and Sustainable Development unlocks opportunities for policy change and sustainable development in India, the UK and globally. All of this helps to facilitate international trade from our region.
Businesses looking overseas for growth know they can’t stand still but an investment of working capital must be well-considered. We don’t know what the medium term looks like and there’s plenty of support available from the DIT and advisers to help with insight and research to pinpoint where the greatest opportunity is, so businesses can feel well-equipped to invest and go for growth.
Michael Colebourn, CFO at success story Mar-Key Group, shares how the business has achieved growth.
As the demand for modular, aluminium buildings continues to increase, so does the appetite for a British-made quality solution. We are the only UK structure manufacturer and have experienced significant growth in recent years.
We’ve developed a bigger, more durable product range in addition to our event product that historically provided structures for our prestigious event clients. Our new range is suitable for long-term use for warehousing, distribution centres, education facilities and allowed us to diversify.
We’ve continued improving our product range, relocated to a much larger manufacturing facility and secured private equity investment from Alcuin Capital Partners to enable us to continue our growth trajectory. We’ve started to export and have secured our second Australian project, having delivered the first last year.
Our growth couldn’t have happened without our team. Our CEO calls it a ‘win-together, lose-together’ mentality. Our staff retention is down to the culture we’ve maintained during growth. We encourage internal promotions, with many members of our senior leadership and board having started in junior roles.
The Central South is a great place to do business. We’re part of the Dorset Chamber and Made in Britain networks. As we scale our export activity, we’ve got great shipping links nearby, so we’re ideally located
to ensure our British product reaches overseas clients.
We have UK manufacturing capabilities – a differentiator to our competitors. We can reduce lead times and make structures bespoke to our clients’ needs. When we invite people for a tour around our manufacturing facility, a trip to the beach makes it very appealing.
The growth potential in our business and within circular construction, is phenomenal because there’s no limit to who could be a potential customer. There’s a huge amount of education needed around the capability of our buildings. The assumption is that they’re a short-term fix, but our structures can stay in-situ for over thirty years. Modular builds are a fantastic alternative to brick-and-mortar, delivered in a fraction of the time, and at a lower cost. When they’re no longer needed, they can be dismantled, repurposed or recycled. We’re only on the cusp of uncovering the potential opportunities…so watch this space!
