Michael Moore’s Outlook on private capital’s part in the mainstream economy
Interrupting the patrons of one of the UK’s largest fitness centres is not something you do lightly. Determined types, these gym goers. Since I am definitely in the ‘lapsed’ category of users (channelling my determination elsewhere for now, you understand), I picked my way with care.
My mission in Cheshire was to meet the chief executive of the fitness business (which has more than a dozen centres in the north of England) and her company’s private equity backers, as we launched a second annual report on the economic contribution of private capital across the UK.
EY’s analysis, following on from their initial report last year, has plenty of strong data points: 2.2m jobs now backed by private equity and venture capital (2021: 1.92m), those businesses generating 6% of GDP (2021: 5%). And it is genuinely a national story – more than 50% of the jobs are outside London and the south east of England, nearly 90% of them, as we know from our separate annual investment report, in businesses with fewer than 250 employees.
Returning to my regular theme, at this scale of impact private capital is part of the mainstream economy, not some specialist niche. And meandering past the weights, rowing machines and fitness classes as I did in Wilmslow, the importance to the real economy was plain. Of course a lot of attention is rightly paid to the positive impact that private capital makes in next generation tech, life sciences and other breakthrough areas where the UK has strong aspirations. But it also makes a real difference to broad swathes of the wider economy in all parts of the UK.
Retail and wholesale accounts for just over a fifth of the employment, but the spread also covers everything from ICT (13%) to arts and recreation (just under 2%). With even a tiny smattering of agriculture, forestry and fisheries (an estimated 7,000 jobs), private capital’s presence can be said to be in every part of the economy.
Returning to the north west of England by train later in the week, provided ample time to reflect on the spread of the economic activity, too. Merseyside, Greater Manchester and the rest of the region have nearly 190,000 private capital-backed jobs, it’s estimated, the most significant concentration outside London and the south east of England. Even in Northern Ireland, the part of the UK with the smallest share of private equity and venture capital-backed employment, there are still 45,000 jobs, a decent share of the province’s economic activity.
Policymakers are taking notice. And this new impact analysis helpfully provides the backdrop against which other industry dynamics can be explained. As the economy moves through the cycle and confidence develops, there is growing evidence of improved deal flow and speculation of more high profile transactions to come. In isolation this activity could seem detached from the priorities of communities up and down the country. But by highlighting the established footprint of the industry and showing how it has developed, the report provides important evidence of the growth focus of both private equity and venture capital.
This context becomes even more important as attention zones in on the prospect of the industry taking more businesses private and reducing the number of companies on the stock market in the UK. In a well-ordered system this is hardly revolutionary, indeed should be a sign of economic health, as corporates move through different ownership and business models depending on their stage of development and needs. Plenty of former VC and PE-owned businesses in time look to the public markets as one option for exits, so the cycle has a symmetry to it.
But there is a legitimate public interest in understanding how significant businesses develop once they have left the public markets. This has long been recognised in the UK through the commitment made to maintain FTSE 250-equivalent annual reporting. Under the ‘Walker Guidelines’, this is required for any public to private transaction which features a business where the previous market cap was in excess of £210 million, and more than half the revenues are generated in the UK or there are more than 1,000 UK employees. More than 70 companies fall into this category at the moment and a quick search for ‘UK private equity annual reports’ will let anyone see what they are up to.
Being part of the mainstream is hugely important. Recognising the public interest in understanding as much as possible about the largest businesses underpinning a decent chunk of the economic contribution also matters. More information, analysis and transparency are necessary conditions to allow everyone to join the dots between those who work in the Total Fitness gym in Wilmslow and the rest of the 2.2 million people whose livelihoods are backed by the industry. There is an important, and good, story to tell.
Michael Moore
Chief Executive, BVCA
This article was originally published on 18 May 2023 on the Private Equity News website here.
