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ECI finds positive outlook among UK growth companies

UK SME bosses are optimistic about the immediate future of their businesses – although this doesn’t necessarily spell good news for the UK economy as a whole, according to a recent survey.

UK private equity firm ECI asked 246 chief executives of UK small- and medium- sized enterprises about their prospects for the coming year.79 percent said they expect to see turnover growth of more than 6 percent, while more than 60 percent were forecasting a double-digit increase. What’s more, 74 percent expect to recruit new staff, and around half think their profits will grow by over 16 percent this year. That’s a more optimistic outlook than this time last year – good news for the UK government’s hopes of a private sector-led economic recovery. According to ECI’s Jeremy Lytle, the results do suggest that the private sector is picking up the slack as the public sector contracts. 

The survey also had some encouraging signs for private equity. Although companies are still growing at a micro-level, some also lack the capital they need to finance growth – which could result in investment opportunities for private equity firms to explore. 40 percent of chief executives surveyed said they were likely to look at this as a financing option.

In terms of growth strategies, 94 percent of the firms are banking on organic growth, while 69 percent plan to increase international sales. Although most were targeting US and continental Europe as potential markets, 19 percent were also looking to emerging markets like China and India. 

The report also found that a third of the CEOs questioned were unconcerned about rising interest rates – possibly, ECI suggests, because of the low levels of debt these businesses currently have. But Lytle dismissed the idea that this could cause problems for private equity; although firms would not want to burden small companies with too much leverage, the private equity model should not be a problem as long as they are sensible about debt levels, he believes.

As ECI accepts, however, this rosy outlook is not shared by many media commentators and economists. Part of the discrepancy may be down to sampling error: all the companies questioned for the survey turned over between £10 million and £200 million, and all had grown by 1% or more in the last year. This means the results have a natural bias towards successful and growing companies – and as such may not be terribly representative of SMEs as a whole (or indeed the private sector). 

Nonetheless, ECI does seem to be taking advantage of the opportunities on offer: it has made six investments so far this year, including Fourth Hospitality SASS, a software provider, and Wireless Logic, a communications company. And it hopes there will be more deals of this type to come: according to its survey, 84 percent of chief executives are expecting growth of more than 6 percent in the IT sector – one of ECI’s main focuses.