SME investing: the importance of government intervention to smaller companies

Friday, Jul 23 2010 by
SME investing the importance of government intervention to smaller companies

The recent emergency Budget served to emphasise the importance of Government intervention in supporting the provision of ‘risk finance' to the UK's small to medium enterprises (SMEs). This is a key issue and, following on from the various measures announced, the Government is due to publish a paper on business finance. It has also announced plans to create a new Growth Capital fund to help keep up funding for SMEs beyond the early stage phase. This could provide serious scale in the region of £0.5 billion, in order to deliver support to this crucial part of the economy. We welcome these developments as we believe it's essential that Government intervention in the smaller company space continues.

Investors and advisers will know that the introduction of Venture Capital Trusts (VCTs), Enterprise Investment Schemes (EIS) and various other funding initiatives by the Government over the last fifteen to twenty years has enabled investors to give support to SMEs. However, Government intervention goes back much further than that and it needs to be on a major scale if we are to keep on delivering the support that SMEs need.

This was emphasised in the Rowlands Report, released in 2009, something that the Government will be referring to as it considers how best to help SMEs. That report pointed out that once businesses progress from being small to medium sized, they become part of a group that represents over a third of the UK's GDP, yet they're underserved in terms of funding, both bank and equity financing, and often need help and guidance to be successful. The report recommended more Government intervention to help these companies continue growing.

Looking back at how SME investing has developed over the years underlines this and points towards further intervention in the future. From the mid 1940s, the Government-initiated Industrial and Commercial Finance Corporation (ICFC) existed to provide funding and support to smaller companies. It did this with great success; a Government intervention that lasted over 40 years, which really helped to shape the environment for SME investment, and subsequently the private equity industry. However, originally part owned by the Bank of England and high street banks, ICFC came to be rebranded in the 1980s as 3i, and floated in the 1990s on the stock market. It came to focus more on larger management buy outs than delivering funding to SMEs. This has left a hole in funding…

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3i Group PLC is a United Kingdom-based investment company. The Company has two complementary businesses: Private Equity and Infrastructure, specializing in core investment markets in northern Europe and North America. Its Private Equity business includes investment and asset management to generate capital returns, and is focused on consumer, industrial and business services sectors. Its Infrastructure business includes investment and asset management to generate capital returns and cash income and focuses on the United Kingdom and Europe. It also offers software solutions to unify fragmented data and provide actionable insight. Its subsidiaries include 3i Investments plc, 3i BIFM Investments Ltd, 3i Europe plc and 3i Nordic plc. 3i Investments PLC is the investment manager of the Company. more »

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Mkt Cap (£m)
10,567
P/E (fwd)
7.6
Yield (fwd)
3.4

Electra Private Equity PLC is an investment trust. The Company is focused on private equity investments. The Company's objective is to achieve a rate of return on equity of 10-15% per year over the long-term by investing in a portfolio of private equity assets. It invests across a range of private equity opportunities, such as control and minority; equity and debt, and direct and indirect. It invests in sectors, including financial and insurance; house, leisure and personal goods; industrial general and transportation; media; real estate; private equity funds; secondaries; support services; technology, hardware and equipment, and travel and leisure. Its secondary investments consist of limited partnership interests in third-party private equity funds. The debt investments consist of loans to the United Kingdom or international borrowers acquired in either the primary or the secondary market. more »

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341.02p
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131.9
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n/a
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7.3



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About Christopher Allner

Christopher Allner

Chris has overall responsibility for growth capital investments at Octopus, is the chairman of the Investment Committee and focuses on assessing potential investee companies, deal structuring and negotiation and portfolio management with a view to maximizing the returns that are generated. He has over 25 years private equity experience and prior to joining Octopus he was a Director at Proven and Bridgepoint, as well as working at 3i and Charterhouse. Chris graduated from Oxford University with an MA in Politics, Philosophy and Economics and holds a Certified Diploma in Accounting and Finance. Chris is on the boards of Myla, The Kendal Group, First Retail and Promotion Space and was on the boards of Covion, Plastics Capital and Gyro International prior to their exits. more »



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