SME funding: Foot to the floor

Posted on 5 Apr 2013 by The Manufacturer

The valley of death still lurks threateningly behind too many decisions to sell sparkling concepts to overseas bidders – and too late do we realise that another prize piece in the UK’s industrial crown jewels has been lost. This is the driver for a new vehicle to bring fresh funding and growth impetus to SME manufacturing.

The UK Manufacturing Accelerator, a Manchester-and London-based operation, aims to connect City money to ambitious projects and companies in the industrial heartlands.

The CEO is experienced corporate financier Malcolm Evans and chairman is Jim Murray-Smith, a polymers and materials veteran who has recently guided the establishment and growth of porous metals innovator Versarien.

Supporting them on the board are other manufacturing specialists and City figures, including Jeremy Veasey, who has a career spanning more than 40 years in the City and over 250 significant transactions behind him.

The UK Manufacturing Accelerator is the result of decades of combined manufacturing involvement and over a year’s specific research on the finance needs of manufacturing SMEs today. Observed trends include:

  1. Recent and important R&D backing from the likes of the Technology Strategy Board is still not closing the gap between academia/invention and commercialisation. Venture Capital is still often finding the heavy lifting between the stages too much and the complexity of evaluation frequently closes down the alternative angel funding route.
  2. We hear a great deal about the “gazelles” – the often IP-rich operations which have often achieved turnover in the c.£3m to £6m range quite quickly. However, what is much under-recognised is the frequency with which such promising manufacturers run out of steam at this size, which often represents the upper limit of founder capacity. It is at this level that manufacturing requires a multi-dimensional step change (recruitment, access to skills, export expansion, plant etc.). Lack of clear access to funding is often the lynchpin that fails to unlock next stage growth.
  3. Immature sell-out of scaling manufacturing assets. Owner founded SME manufacturers which scale through into the circa £30m to £100m are sold out to new management. This introduces huge borrowings into the business, private equity – which is often focused on shorter-term profit maximisation, or overseas ownership, which removes some of the benefits to the UK. There is a strong professional advisory drive towards ownership transactions, with an inadequate focus on the longer-term maturation and sustainability of such SME manufacturer assets that do scale into the significant mid-size.

The UK Manufacturing Accelerator has deep experience in materials and polymers and is currently at an advanced stage of evaluation of investable projects in these areas. The aim is to fast track growth.

Across the UK Manufacturing Accelerator’s broader network of expert evaluators – and invitations are always open to fresh collaborators – are electronics, renewables, and nanotech specialists. A stable of potential projects is being assembled in these areas.

The operation is not structured as a traditional fund. It is a limited company and is making investments off its own balance sheet, looking to create liquidity via an AIM listing within 24 months.

In this way the founders are seeking to create a greater degree of flexibility around the amounts they invest and the envisaged timescales of the investments. They are seeking to trigger additional third party investments, both private and public sector, where necessary.

Funding is available for early stage now and the company is currently exploring major debt fund creation to address the ‘patient capital’ of already substantially-sized manufacturers.