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Despite Covid-19, Britain’s growth economy businesses remain ambitious about growth

BGF News 14.12.2020.
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New research released today by BGF has highlighted for the first time how growth economy companies are responding to Covid-19.

According to the survey of 532 companies, carried out by independent research company Delineate, the pandemic has created significant barriers to growth for 67% of respondents, with operational risk highlighted as the primary concern around future growth.

However, despite the obvious headwinds, three quarters (75%) of companies remain motivated to grow their business in 2021, signalling a strong level of resilience and entrepreneurial drive across these firms. Market growth is seen as the greatest opportunity for expansion (24% of all respondents).

It appears that the pandemic has changed how many companies are operating – for good. Six in 10 said that the pandemic has triggered permanent changes to their business models. 36% have invested, or plan to invest, in digital infrastructure and 27% have entered new sectors.

Promisingly, and looking ahead to 2021, 73% of growth economy companies stated that they are financially stable enough to pursue growth. However, only 29% would have no requirement for further funding over the next 12 months – indicating that growth would be mostly contingent on new investment.

There are more than 21,000 growth economy companies in the UK, according to research undertaken by PwC for BGF. Growth economy companies have revenues between £2.5m and £100m – the majority are fast-growing and profitable, with total turnover rising 4% a year on average (between 2013-18), compared with average GDP growth of 2% a year over the same period.

It appears that continued investment is seen as critical by the respondents. 89% of growth businesses made some form of internal investment during Covid-19, with the majority focusing investment in technology/digital infrastructure. Just 11% made no investment in their business through the pandemic.

The survey has shown that businesses across the country have taken on additional levels of debt, with 27% accessing a government Coronavirus Business Interruption Loan, and 34% utilising the Furlough Scheme to reduce expenditure. 19% had made a personal investment in their business in the last 12 months and more than half (55%) will be looking to de-risk their personal investments in the next 12 months.

Private equity has been a go-to source of funding for nearly one in five businesses in the last year – with a strengthened balance sheet (45%) and access to additional business and strategic support (45%) cited as the primary benefits of equity finance.

Growth economy companies are of the view that targeted investment with incremental capital of between £1m and £5m (33%) and £5m-£10m (30%) would have the greatest impact on the growth trajectory of their business.

Despite the uncertainty of the pandemic, 60% reported that their teams have worked as effectively, and 56% feel that the company culture has strengthened over this time. Around half do expect to revert to previous ways of working when able, indicating a desire to return to the office.

When asked about staffing levels, 21% of respondents said they planned to make a few redundancies in the months ahead and 8% said they planned significant redundancies. However, more than a fifth (22%) of respondents said they planned to hire a few new staff and 5% said they planned significant new hires – signalling that overall employment across the growth business population will remain robust.

Andy Gregory, head of investments, UK & Ireland, BGF, said: “The research suggests that despite the obvious headwinds, growth economy companies have demonstrated high levels of resilience during the pandemic. Importantly, they appear to be thinking ahead to the next 12 months, working to reposition and refuel their companies to pursue growth. As businesses look to either enter new markets or refocus their operations, closing any skills gaps and bolstering their senior leadership teams will be critical.”

Stephen Welton, executive chair, BGF said: “What we’re seeing is financially stable companies that have weathered the storm of 2020, but a lot of uncertainty as we head in 2021. They don’t need loans to bail them out – they need equity-based solutions to help them thrive and accelerate change. With the right type of support to meet demand, we believe in the long-term, well-run and well-capitalised businesses can more than weather the storm of this crisis, they can drive growth in the engine room of the economy.”

Click here to read the Growth Economy Survey Whitepaper in full, visit: www.bgf.co.uk/the-growth-economy-survey