British businesses have had a difficult 18 months. Ever since Russia invaded Ukraine, they have had to deal with a tsunami of economic headwinds – with rising energy costs, inflation and interest rates combined with unfavourable capital markets, making it hard for companies to either successfully IPO or raise money using shares.
But there’s a strong culture of entrepreneurialism and innovation in the UK, which hasn’t gone away.
With signs of some green shoots emerging, what business needs is support and investment so
ambitious companies can capitalise on the opportunities that are presenting themselves.
The question growing companies have been faced with in the past is whether their raise money the
private markets – venture capital, angel investors, debt funds, banks – or brave the equity markets.
As London Stock Exchange (LSE) CEO Julia Hoggett said recently: “We have treated the public
markets as from Mars and the private markets as from Venus.”
This is particularly important in sectors critical for UK growth such as technology, healthcare and
energy, and where the UK has undoubted strengths. Only by sourcing finance for them can we keep
the expertise and value that we’re creating in this country within this country.
When we first started talking about a merger between Cenkos and finnCap last year, this was one of the key drivers behind the creation of Cavendish, a full-service investment bank for ambitious growth and investment companies.
We wanted businesses to be able to come to one place and be offered the best options for them at that time, not just what products the firm has in its locker.
Growing companies need support through their lifecycle, from when they are raising seed capital to scale up to when they are using their listed equity to fund growth and make acquisitions.
They need advice to make the right choices – particularly now with the Bank of England base rate at 5.25% and likely to go up before it goes down, should companies be looking to replace expensive debt with equity if they can?
There’s another important role of a full-service investment bank in the growth space, and that is helping UK pension funds find places to invest in UK companies.
The Capital Markets Industry Taskforce found that in the last 25 years the share of the UK stock market now owned by pension funds and insurance companies has declined from 39 per cent to 4 per cent and investment in unlisted UK companies to just 1 per cent.
The Mansion House Reforms announced by the Chancellor in July should help make investment in companies listed on the LSE more attractive. However, we need to look at the market as a whole, and create an environment where the best place for domestic pension funds to invest is the UK.
Of course, you can look to the Government to change pension regulation, you can look to pensions advisors to be more flexible, but it’s a supply side issue as well as demand side.
The fact is that – notwithstanding the high-profile listings in the US such as ARM – the UK can be the best place for small and medium-sized businesses to raise money.
We need to do more to promote investment in British companies as supporting growth is a virtuous circle – creating jobs, fuelling local economies, raising tax revenue. A rising tide can float many boats. It’s been very easy to talk down British business and the UK stock market in the last year or so.
But we believe we can help transform the agenda, unleash our entrepreneurs and innovators and be a catalyst for ambition and growth within this country.
Julian Morse and John Farrugia are joint-CEOs of Cavendish, the full-service investment bank created today through the merger of Cenkos Securities with finnCap Group.