Private equity-backed businesses have a growing appetite for international expansion, despite the ongoing geopolitical uncertainty facing regional mid-market companies.
According to the latest research from BDO, more than three-fifths of PE-backed businesses (64%) are looking to enter new international markets, ranking it as the biggest opportunity for growth over the next six months.
The firm’s bi-monthly Economic Engine survey of 500 mid-market businesses – companies with revenues between £10m and £500m – shows that while domestic growth remains a priority for private equity-backed companies, investment will also spread into other territories over the next 12 months, including North America, Asia-Pacific and the EU.
This correlates with the latest export figures from the Office for National Statistics (ONS). These show that international trade remains resilient, increasing by £2bn in January, up by 6.7%, with businesses in the Midlands exporting more than £100bn of goods and services, according to the ONS ‘International trade in UK nations, regions and cities’ report.
While 59% of PE-backed businesses have plans to increase UK investment, this number is dwarfed by an overwhelming 95% of independently-owned and run businesses that intend to ramp up domestic investment in the likes of people, technology, capital expenditure and acquisitions over the next year. Unsurprisingly, the majority of those mid-market businesses believe the UK is more attractive than other countries to invest in, compared to 77% of PE-backed businesses.
Steve Round, partner at BDO in the Midlands, said: “There’s no doubt that geopolitical uncertainty has made regional businesses take a step back and reassess where investment is being channelled over the coming months.
“However, what’s clear from our Economic Engine data is that the appeal of international markets remains strong, particularly amongst private equity-backed businesses. They’re intent on making the most of new growth opportunities, whether that’s by tapping into a larger customer base, unlocking new revenue streams, or by diversifying their market presence in overseas territories.
“While this approach doesn’t come without its challenges, especially in the current climate, PE-backed businesses are well-equipped with the strategic support and funding to explore and execute effective global expansion strategies, whether that’s through M&A, licencing and franchising, exporting, joint ventures, or by starting from scratch. Regardless of the route, it’s this level of ambition that will be vital in helping to fuel the regional economy in the coming months.”
Recent research shows that Midlands headquartered private equity-backed businesses achieved average annual EBITDA growth of 54.6% over the latest three-year-period, underlining the positive impact that private equity is having on the region’s economy.
The second Private Equity Value Report from Real Deals, developed in association with BDO, highlighted 46 qualifying businesses in the Midlands. Forty of which ranked in the top 245 private equity-backed companies across the UK and achieved average EBITDA growth of 62.3%.
Accountancy and business advisory firm BDO commissioned the research to understand the impact that private equity investment is having on the growth of the UK economy.