The objective of this survey is to understand, at the company level, what management’s expectations, aspirations and strategies for growth are as they plan for the year ahead.
We believe that the views of these directors will be helpful to both existing and prospective management teams, as well as their advisers and investors. The results of the survey will also provide useful insight for UK banks, policymakers and the media in understanding the challenges and opportunities facing UK growth companies. While the majority of the questions are similar to last year’s survey, we have modified the topical questions in relation to the potential impact of the Eurozone crisis and investment in technology.
Our sample was taken from UK growth companies with turnover of between £10m and £200m growing at 5% or more per their last accounts plus similar growth companies from ECI’s own network. A total of 315 directors responded to the survey during a 10-week period, starting in early June 2012. Respondents came from a diversified background of sectors and ownership including quoted, privately owned, private equity-backed and corporate subsidiaries.
The good news is that, over the three years that ECI has been running our growth survey, some of our early trend-bucking optimistic predictions have come true. Most notably, the private sector has added nearly 900,000 jobs, with half of them being created by SMEs (ECI’s own portfolio grows employment at 9% per annum post our investment). This reconfirms the importance to the UK of SMEs and, in particular, the high-growth companies that can help rebalance the economy. Indeed, ECI’s own analysis of Experian Corpfin’s database indicates that the number of growth SMEs in the UK has increased by approximately 40% in the last two years.*
The headline results are:
- 86% of directors of growth companies are predicting to grow by 6% or more in the next 12 months
- 78% will grow employment
- 72% will invest for growth
However, it is not all plain sailing:
- 64% of directors indicated that raising growth finance is difficult or very difficult
- 56% noted that the Eurozone crisis is having a negative impact on their business
As Sir Richard Lambert notes in the foreword to this survey, it is imperative to create the right environment for high-growth SMEs. They tend to invest more and grow employment more than other sized businesses. The key areas for investment, other than overseas expansion, are investment in staff and investment in R&D and new products. Encouragingly for the economy, fewer businesses are focused on cost reduction this year than the last two years.
While issues such as the Eurozone crisis are outside the control of policymakers, other key areas, such as access to finance, regulation, education, immigration and taxation, are ones that still leave room for improvement. Most notable among these is access to finance, which continues to be cited as difficult for nearly two-thirds of successful high-growth companies in the UK. There is plenty of capital available within the PE industry, and ECI alone invested £130m in 2011. However, we all need more liquidity in the debt markets in order to ensure these high-growth SMEs can maximise their potential.
* Independent companies and subsidiaries with turnover of £10m-200m which have grown by 5% or more in the past two sets of accounts, according to Experian Corpfin.