UK private equity strongly impacts economy

Private equity is a significant driver of economic growth in the UK, says a new survey by the BVCA.

There are some impressive numbers in the Economic Impact Survey 2001, conducted by Bannock Consulting on behalf of the British Venture Capital Association (BVCA), which states that private equity backed companies have boosted the UK economy in a number of areas, particularly over the last five years.

The report shows that sales of businesses backed by private equity firms rose by 27 per cent per annum, more than double the amount achieved by FTSE 100 companies. Exports and investment also grew, with the former increasing by 27 per cent compared with a national growth rate of just 4.4 per cent, and investment by 24 per cent compared with a national increase of just 8.8 per cent.

“Private equity in the UK has really come of age,” said John Mackie, CEO of the BVCA. “20 years ago it was a cottage industry, but over the years has grown exponentially. It’s a success story for British industry.”

The report states that private equity companies create jobs at a considerably faster rate than established firms. During the five-year period ended 31 September 2000, the number of people employed by private equity-backed companies increased by an average of 28 per cent per annum compared to just two per cent growth for the national private sector. Private equity firms account for the employment of around 2.7m people – 15 per cent of the current private sector workforce.

Another major beneficiary of unquoted investment activity has been the taxman. The report estimates that during the last tax year, private equity backed firms collectively contributed a total of £26.8bn in taxes.

This number will be lower this year, as total investment activity has decreased significantly. “Most people would share the view that this year will be down, particularly in the technology sector, but technology is only a subset of the private equity industry, and by the second quarter of next year, things will return to normal,” he said.

Edmund Truell, incumbent BVCA chairman, said the short-term downturn would provide the industry with challenges as much as opportunities. “We are not complacent. We must make the most of these opportunities and bear in mind the long-term nature of our industry and our asset class.”

Truell went on to say that he believed the industry would continue to grow, generate superior returns for investors and drive economic growth in the country.”