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UK growth capital market performs well in Q3 2016 – no slowing in terms of deal volumes

  • Institutional fund managers account for majority of activity by value
  • Technology and online sectors continue to dominate

In Q3 2016 there were 87 completed transactions, where private UK companies were raising between £1 million and £15 million, in which an aggregate £332 million was raised.

Jonathan Garbett, Director at Kingston Smith Corporate Finance, comments, “This is entirely in line with the trends of the last few years. In the first three quarters of 2016 over £1 billion has been raised by UK private companies in equity cheque sizes of over £1 million. It is really encouraging to see just how robust this market is. Investors and companies have had lots of reasons to pause but they simply continued working on the deals.”

“Managers told us back in July, when we put out our Q2 research, that after the EU referendum decision it was going to be ‘business as usual’. This is exactly what has been delivered in Q3.”

“The sectors that continue to dominate growth capital activity are all things technology and online.”

“We believe that we will continue to see substantial activity in this growth capital market through the rest of 2016 and in 2017. If you are a growing company with significant activities in the UK you are in the right place with great access to funding.”

Growth Capital Statistics

2014 2015 2015 Q3 2016 Q3 2016 YTD
Value of institutional transactions (£ million) 741 890 209 213 670
Value of non institutional transactions (£ million) 417 547 125 105 340
Total value of transactions (£ million) 1,158 1,437 334 318 1,010
Institutional transactions (number) 177 190 43 41 130
Non institutional transactions (number) 112 170 42 28 102
Total number of transactions 289 360 85 69 232


Sector transaction review

The technology (including software and digital) and online B2B sectors still dominate, with around half the transactions falling into these two sectors. “Companies in all sectors that are growing and considering raising funds should assess their intellectual property position and online strategy as these are crucial value drivers for UK companies as far as most investors are concerned,” comments Garbett.

AIM

Companies may choose to IPO on AIM to source growth capital and so we have started analysing statistics for AIM as part of our research. The London Stock Exchange provides reports on ‘New Money’, being equity amounts raised on first admission to AIM, and ‘Further Money’ being equity amounts raised by companies already listed on AIM. In Q3 2016, £260 million of New Money was raised in 11 transactions, with an average of £23 million per transaction, and £1.1 billion of Further Money was raised with an average of £2.12 million across 499 transactions.

This is in respect of all cheque sizes and companies in all jurisdictions on AIM and we have some work to do to understand how the AIM data correlates with our private company data. It suggests though that while AIM is a great source of equity if you are on the market already, it may be that IPO is not the preferred route where £1 million to £15 million of equity is required by a private company.

Outlook for 2016 and beyond

“We think that the UK is rivaled only by the US when it comes to supply of funds and entrepreneurial talent. These Q3 statistics support this. We also think there are challenges to come. Exchange rates, economic growth and potential “hard” Brexit all figure in the thinking of investors and companies. Notwithstanding those, the prospects for the UK growth capital market in 2016 and 2017 are good.”

Methodology

Kingston Smith has analysed transactions by UK based companies that involve the issue of less than 50% of share equity share capital to third parties and funds raised of between £1 million and £15 million. Accordingly, these numbers do not include senior debt and mezzanine debt fund raisings and smaller fund raisings by companies and start-up funding unless more than £1 million is raised. Start up funding is generally very much less then this amount.

The research aims to capture all transactions by UK companies that fall within the criteria but inevitably we expect that there will be transactions that have taken place but have not been captured.

The research is based exclusively on data extracted from the Zephyr database of M&A transactions, published by Bureau van Dijk.

Definitions

  • Growth capital

For the purposes of this report, growth capital is defined as transactions in which between £1 million and £15 million is raised by companies based in the UK, where equity is issued and the existing shareholders retain control of the company.

  • Institution

We define institutions as organisations in which full time investment professionals are in place and have access to assets under management or proven investor networks. Accordingly we include crowdfunding platforms and certain investor clubs. We also include companies providing growth capital to other companies.