UK high-growth businesses are finding it harder to access finance, with 51 percent expecting access to finance to be either difficult or very difficult, up from just 22 percent in 2015.
The findings come from a survey of 315 growth companies across the UK by UK-focused mid-market firm ECI between the end of June through to August 2016.
The survey found that Scottish companies are the most concerned about access to finance, with 83 percent expecting it to be difficult or very difficult. Companies in the South West are the most optimistic, with just 37 percent expecting it to be difficult or very difficult.
The results chime with those of Private Equity International’s own survey of more than 300 private equity professionals in June following Britain’s decision to leave the EU.
Two-thirds of PEI’s global respondents predicted tighter financing conditions, and among the UK-based respondents, a much higher proportion – 80 percent – predicted greater difficulty in accessing debt, as reported by PEI.
One London-based deal maker, who asked not to be identified, told PEI that while some of the more exotic debt packages – for example, so-called payment in kind or ‘PIK’ notes – may now be off the table, the amount of senior debt available had remained stable. PIK instruments are popular with borrowers because they offer flexibility in paying interest: instead of handing over cash on each payment date, the borrower can issue additional securities, for example.
“Whereas you might have had five turns of senior debt and a PIK note adding a further three – taking you up to eight times debt – you are probably now working based just on the senior,” the dealmaker said.
ECI’s survey found that high-growth businesses are less likely to choose private equity to help fund increased investment and hiring over the next 12 months than they were last year; just 44 percent said they would either definitely choose or were likely to choose private equity, compared to 75 percent in 2015.
Private equity remains the third most popular choice for funding after internal cash flow (96 percent) and bank debt (58 percent). The other options to choose from were public markets and private investors.
ECI’s survey also found a significant majority of high-growth companies – 82 percent – want the UK government to prioritise continued access to the EU single market in the upcoming Brexit negotiations.
What growth companies fear most is an economic downturn following the referendum.
“I wanted to remain but the decision has been made and we have to be careful not to talk ourselves into recession,” Jonathan Elliott, chief executive of price comparison website Make It Cheaper, said in a statement.
“I think there’s a lot of EU regulation out there that may have originally been well intended but has been badly executed. It would be good to see the removal of some unnecessary red tape.”
A majority of high-growth companies – 77 percent – are suffering from skills shortages, down from 91 percent in 2015. Driven by this, the second highest priority for these businesses is continued access to the EU’s workforce.
Despite concerns, 67 percent of companies surveyed expect to grow revenues in the next year, with 43 percent expecting double-digit growth. Just over 30 percent expect to increase investment and hiring in the next 12 months, while 19 percent plan to freeze and 6 percent plan to make cuts.