Some 70 per cent of VCT managers report that portfolio companies have been net recruiters over the last year, with a further 80 per cent expecting net recruitment next year, according to a poll by the Association of Investment Companies (AIC).
Some 88 per cent of VCT managers expect overseas sales from portfolio companies to increase next year. The greatest sources of overseas growth for portfolio companies are currently Asia Pacific (25 per cent), North America (25 per cent), emerging markets (19 per cent) and Europe (19 per cent).
Some 44 per cent of managers report that portfolio companies have had difficulty raising bank debt over the last 12 months, although a further 44 per cent say portfolio companies have not experienced difficulties. Eleven per cent of managers say it depends on the company.
Bill Nixon, managing partner, Maven Capital Partners, says: “Things have remained pretty much the same over the past 12 months i.e. whilst banks are willing to lend to larger profitable businesses, finance for smaller or less profitable companies remains very difficult to access. For businesses which require additional finance to restructure or deal with a dip in performance, the process associated with securing bank support can be lengthy and expensive, if further finance is available at all.”
David Hall, managing director at YFM says: “A minority have had to seek bank lending and where this has been the case it has been difficult, although across the portfolio as a whole the majority have not had to seek additional finance.”
Looking ahead, some 60 per cent of VCT managers expect the next 12 months to be tough for portfolio companies to raise bank debt.
Technology is the most favoured sector for 2013, followed by renewable energy. Business services and healthcare (including biotech) are in joint third place. The most favoured regions amongst VCT managers are London (27 per cent) and the South East (27 per cent), followed by the South West (13 per cent). But 10 per cent of VCT managers are also favouring the Midlands and East Anglia, whilst another 10 per cent are also favouring the North West and seven per cent are also keen on the North East.
Some 45 per cent of VCT managers paint a mixed picture of the UK economy and say that most companies are taking a cautious approach to growth. But a further 45 per cent of VCT managers point to an economy on the up, with 36 per cent of these saying that those companies who have kept their heads above water are now in a good position to move forward. Only nine per cent of VCT managers say they do not think the UK economy is improving.
Hall says: “Generally confidence remains low which is seeing the overall level of management buyout/management buy in activity in the lower mid-market at much lower levels than experience pre 2008. The picture is patchy across the country but the lack of confidence feeds through to new investment at each stage, which means that any investments which are around can take longer and there is a greater fragility to the investment pipeline. As far as we can VCTs are seeking to step in and provide a greater proportion of the financing solutions.”
Annabel Brodie-Smith, communications director at AIC, says: “With bank debt still very difficult for small businesses to access, the VCT sector continues to play a crucial role in supporting those companies at the coal face of the UK economy. It is very encouraging to see that despite the tough economic climate, with the support of the VCT sector, the vast majority of portfolio companies have been net recruiters over the last 12 months, with a similar story anticipated for next year. It is also interesting that VCT portfolio companies are seeing strong growth from markets in Asia Pacific, North America, emerging markets and Europe, highlighting the (often overlooked) international exposure of the VCT sector.”
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