The UK government has launched an initiative it hopes will kick-start investment in growing businesses as the UK claws its way out of recession.
The £2.5 billion (€2.8 billion; $4 billion) Business Growth Fund will back UK-based small- to medium-sized enterprises with turnover of between £10 million and £100 million, in instances where a funding gap has been identified. The fund will offer long-term capital of between £2 million and £10 million in return for a minority stake of at least 10 percent in the business and a board seat for one of the fund’s directors. The average duration of investment is expected to be five years.
The fund was established by the five banks on the UK’s Business Finance Taskforce: Barclays, HSBC, Lloyds TSB, RBS, and Standard Chartered. Santander had been due to invest in the fund, but pulled its commitment, a spokeswoman said.
Other investors may join the scheme later, according to a statement by the British Banking Association, which has collaborated with the five banks to establish the fund.
Where appropriate, the fund will be able to offer what the BBA called “innovative equity-like products such as redeemable preference shares”. A panel of lenders, comprised of other institutions beyond the six contributing banks, would be able to provide additional debt facilities as part of an overall capital package, a statement said.
The fund, headquartered in Birmingham, has assembled a team of 30 people, and is still actively recruiting investment professionals. Earlier this month, it announced the appointment of 3i Group partner Richard Bishop as head of investments. Ironically, 3i originated back in 1945 as a government-backed investment group targeting SMEs in the UK. British industrialist Nigel Rudd has been appointed as the BGF’s chairman.
Stephen Welton, chief executive of the BGF, said: “Companies of this size have often struggled to secure financing to support their growth plans – too big for start up funding and too small to tap into larger commercial funding. We are responding to that need. We will not only provide longer term finance but will also offer ongoing help and advice, working closely in partnership with the businesses that we back,” Welton said.
The BGF is designed to make a lasting and substantial economic and market impact.
Earlier in the year, Welton wrote: “The BGF is designed to make a lasting and substantial economic and market impact. It will broaden the financial options available to businesses and re-establish the importance of equity investment for growing medium-sized businesses. We will be looking for sound investments which will deliver sustained growth. We do not want to undertake deals simply to generate short-term returns. To achieve this, we will make minority investments, with sensible protections, looking for a long-term relationship with the companies in which we invest.”
A spokesman for trade body the British Private Equity and Venture Capital Association said: “We welcome the launch of the Business Growth Fund and believe it will complement what our members who operate in that space of the market have been doing for many years. It will be operating in a pretty tricky and defined section of the market, where there is need for funding, and we wish them well.”