Midlands
Diverse cities
With the Midlands making up the UK’s largest regional economy outside of London, with 11 million residents dwelling across its town and cities, it’s no surprise that this region offers a wealth of businesses hailing from many different sectors. Add to that strong rail, road and air links, and the region is an obvious choice for businesses and investors alike.
BGF investment partner Seb Saywood agrees: “There’s real diversity in terms of sectors in the region. If you take the West Midlands, for example, it has a strong heritage for manufacturing and industrials, which remains true, with an increasing number of advanced manufacturing businesses. There’s also lots of activity in the cultural and creative sectors, which collectively form a big part of the economy. Then there’s construction, healthcare, logistics and life sciences – a sector that we have previously invested directly in through BioCity, a Nottingham-based incubator. In addition, there's a really strong contingent of businesses in digital technologies, business and professional services, leisure and hospitality. The list goes on. That strength in diversity is key for an investor like BGF, which invests broadly across sectors.”
There's a really strong contingent of businesses in digital technologies, business and professional services, leisure and hospitality
And the fastest-growing private equity-backed companies in the region truly exemplify the region’s diverse business offerings. The list blends the old with the new, with Kidderminster’s 200-year-old carpet maker Brinton’s topping the table, rubbing shoulders with innovative waste and recycling businesses Reconomy and Egbert Taylor. Alongside those environmentally forward-thinking businesses is Big Society Capital-backed Unity Trust Bank, providing fair banking services for the betterment of society.
When it comes to advanced manufacturing, the list features Leicester-based camera lens maker Cooke Optics. And as Saywood mentions, Nottingham’s BioCity is pushing the region’s pharmaceutical and medical standing, reflected in our list by CARE Fertility and Quotient Sciences. And finally, in the consumer and leisure space, the Midlands houses well-known nutrition brand Grenade, as well as online tour operator Cruise.co.uk. Also on the list is outdoor clothing retailer Equip Outdoor and diving apparel brand Gill Marine.
Another excellent example of this diversity is Solihull-based mission-critical banking software specialist Phoebus. The company, founded in 1989, was the subject of a management buyout in 2019 backed by NorthEdge Capital, which facilitated an exit for two of the company’s original founders. Co-founder and CEO Paul Hunt led the process to bring an external backer on board: “We engaged with lots of PE houses, as you should, and chose NorthEdge because they were a good fit for us; they were keen to back the management team while retaining the culture of the business, supporting both our colleagues and our clients,” he says.
There are numerous examples of excellent people spinning out of large corporates across the region
In the event, as Hunt explains, the support of NorthEdge, even throughout the unprecedented Covid-19 crisis, has played an important role in supporting the business in its five-year plan. During the pandemic, while some of Phoebus’s competitors were focusing on downsizing and cutting their cost bases, the support of its backer meant the firm was able to focus its efforts on building out its product development, accepting that market conditions at the time would inevitably lead to some fall in top-line sales in the short term.
Nevertheless, as he points out, the attention to detail on efficiencies, cost bases and Ebitda remained, but there has been a clear focus on reinvesting profits to build a more contemporary and intuitive user experience via a new user interface. “The refreshed value creation plan has allowed us to transition from being a professional services company with software to being a product company, which is closer to our goal of being a SaaS company. It enabled us to build out our product in a much more functionally rich and user-friendly way,” explains Hunt.
As part of that journey the business has placed a heavy emphasis on attracting ever larger clients at each iteration of its product, recently signing up blue-chip clients such as Aviva and Capita.
When it comes to deal-doing in the Midlands, Saywood believes the combination of an expert advisory community and compelling businesses makes the region an excellent choice for investors. “The quality of the advisory community in and around Nottingham and Birmingham, as well as the broader Midlands region, is excellent. It has been for a considerable amount of time; there’s a long pedigree here. That, of course, is built around excellent businesses and owner managers – the people really creating value. The two of those combined makes it a very attractive place to do business in – a very different dynamic to working in London.”
But where do these exceptional entrepreneurs come from? And what is driving the growth of these diverse businesses? According to Saywood, several institutions in the Midlands are supporting the development of the region’s talent: “Universities are a good starting point. We've got several great universities in the region but there are a couple with spinout programmes that are creating exciting opportunities, notably the University of Nottingham. In the engineering heartland, there are a number of world-leading businesses that feed into that ecosystem. Rolls-Royce has had a dramatic impact on the Derby economy. It is an example of a corporate that feeds more than just the supply chain, and helps to develop skills in entrepreneurial people who go on to start something themselves.
The refreshed value creation plan has allowed us to transition to being a product company, which is closer to our goal of being a SaaS company
“In Nottingham, you've got businesses like Capital One and Experian, which nurture and develop budding entrepreneurs who also go off and do other innovative and fantastic things. There are numerous examples of excellent people spinning out of large corporates across the region, in a range of sectors. This is vital for the local economy and deals market, and extremely attractive for the likes of BGF, which is committed to working with dynamic and exciting businesses that have compelling growth prospects.”
Phoebus’s Hunt echoes this: “Overall, the Midlands has got a very rich vein of tech talent. We work with both Aston and Warwick universities to support and work with their graduate schemes and take on a number of students from their sandwich programmes.”
“Partnering with a private equity firm that has deep sector expertise as well as knowledge and understanding of the local market can help accelerate value creation.”
Sarah Ziegler, Head of Private Equity Coverage, BDO
Plus, as he explains, while the post-pandemic work-from-home trend means Phoebus can spread its recruitment wings beyond the local area, having staff sourced from the local talent pool is very important from a cultural perspective. What’s more, another spinoff from the pandemic is the trend towards other businesses de-centralising and moving from, for instance, London bases, which serves to increase the level of talent available locally.
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