What do private equity firms think about UK manufacturing? Dougal Bennett, partner of mid-market private equity firm Dunedin, tells TM.
From an investor perspective, how attractive does the manufacturing sector look at the moment?
“There are some really interesting businesses which have managed to survive the turmoil of the recession – many of them have grown impressively despite the difficulties of the economic environment, usually because they make or do something which others want and need.”
“Often in the UK these businesses have had to look to overseas markets to sustain themselves or to grow further and they have often enjoyed great success in doing so.”
“Britain has companies with world-leading engineering skills and world-class service capabilities. As the global economic outlook continues to improve, so do the prospects for these fantastic British businesses.”
What’s the outlook for private equity activity with manufacturers in the coming year?
“I think 2014 will bring greater private equity activity in the manufacturing sector – we’re expecting to see more of both new investment and exits.”
“M&A interest in UK manufacturing assets from overseas buyers is likely to continue to be strong – we think Asian buyers, in particular, will focus on the UK market.”
In your view, what factors are holding UK manufacturing competitiveness back?
“Some smaller companies are struggling to get access to the capital they need in order to invest in new capacity and they also need more working capital as their businesses grow.”
“Sometimes, companies get to a crucial point when they need outside help – in order to access a particularly attractive overseas market opportunity, for example, or to go through a step change in capacity; this is when private equity should be able to help – with capital, ideas, connections and experience.”
“Private equity can help businesses get the right capabilities or products aligned with the right people – by adding some capital and experience to a business, and by pointing it towards attractive global market opportunities, we can really help companies to grow as the recovery takes hold.”
What do you think manufacturing business owners worry about?
“The owners of manufacturing businesses know that the recovery is creating new opportunities but they are also mindful of the challenges they will have to encounter.”
“One problem right now is that accessing suitably qualified labour in the UK can be difficult. Securing capable engineering resource or sales resource with a proven international track record can be difficult.”
“Rising energy costs are a problem for many businesses too. So is the question of how to access working capital support.”
“Currency market fluctuations are not currently causing businesses problems, even in the export sector, but there is always the spectre of a further blow up in the eurozone – that would have really negative knock-on effects on the UK recovery and it is a concern that worries many companies.”
What is your view on the availability of bank lending to support UK manufacturing growth?
“Bank debt is available to industrial businesses – but only to the right companies with the right private equity sponsors. The days when any company could get bank finance have now gone.”