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What is the overall outlook for the Midlands in 2021?
Forecasting the future is difficult, particularly given the uncertain economic landscape caused by Brexit and the pandemic. But it is not all doom and gloom from the Midlands’ perspective, as innovative businesses will still have opportunities for growth, even in traditional sectors. We recently provided growth capital to Vivarail, which specialises in developing a range of hybrid, electric, and battery solutions for rail carriages and systems, via the Midlands Engine Investment Fund (MEIF). With some neighbouring regions lacking an MEIF equivalent, the Midlands has a real advantage in the race to attract businesses. Nissan, for instance, partnered with Coventry-based manufacturer Dynamo to develop electric taxis. Generally speaking, the Midlands can look forward to exciting activity in 2021.
Does the region remain appealing to investors?
In short, yes – and there are multiple reasons for this. Firstly, the Midlands offers businesses convenient connectivity to the capital without them having to pay a premium for London office space. Renting flexible workspace in Birmingham, for example, costs an average of £245 per desk per month, considerably lower than London’s £523. Meanwhile, HS2 is among Europe’s biggest infrastructure projects, and will help bring in even more businesses which have been priced out of London.
Another draw for investors is the depth of the Midlands’ talent pool. With the region’s 20+ universities producing a combined 100,000 graduates per year, and with 30% of its population below the age of 25, the Midlands boasts an embarrassment of riches when it comes to the type of talent which businesses want to invest in. Moreover, this young population makes the Midlands especially receptive to new ideas, including the UK’s 5G rollout. Birmingham currently edges London with 11.2% 5G coverage, while the West Midlands’ 7.3% coverage is almost treble that of Greater Manchester. Metrics such as these matter to modern businesses, and we can expect to see investment follow growth companies into the region.
Which sectors were the region’s most resilient in 2020?
Tech-enabled businesses have obviously taken great strides forward during the pandemic, with Covid-19 accelerating the longer-term trend of digitalisation. Many of these businesses have benefitted because they already operated online pre-pandemic, which made the transition to working from home much smoother. In contrast, sectors such as hospitality have faced particular hardship.
However, firms’ fortunes have not been determined solely by sector. Many companies in more traditional arenas, which needed to adapt dramatically to survive 2020, have done so successfully. We have seen producers of cleaning products, for example, pivot to providing PPE, attracting substantial order volumes and creating new opportunities for growth. This highlights the importance of the Coronavirus Business Interruption Loan Scheme (CBILS), without which many companies in need of growth capital would have been unable to structure their finance requests. In addition, nimble management has instilled resilience in businesses across virtually all sectors, and will characterise those companies which emerge from this crisis most successfully.
How has the current climate affected demand for funding in the region?
We have seen changes in both the number and the nature of finance requests. Unsurprisingly, the number of requests we have received in the year since the pandemic began is much higher than the historic average. With banks having reached certain lending thresholds, financial introducers are seeking alternative institutions which may be willing to take a more holistic view and provide a structure that may be better suited to their clients. Focusing on the MEIF Debt Finance side, three-quarters of loans provided in the past twelve months have been under the CBILS scheme.
Will the pandemic have any long-term consequences for investment in the region?
Uncertainty does not create favourable conditions for investment, but we should hopefully see this hesitation recede as the vaccine rollouts progress. There are still opportunities for innovative companies which will look to be the most agile and adopt new technologies, as established norms and operational models begin to be challenged. In terms of supply chain, we see a shift from a low-cost Far East decentralised supply chain model to a more centralised local one. This is being fuelled in part by the pandemic also having an impact on consumer behaviour, with a stronger preference for higher quality products which are locally produced but which are also tied to companies with strong corporate social responsibility and environmental policies. Overall, there will still be opportunities for investment, with funds like the MEIF ready to provide growth capital.
How might Brexit affect the outlook for the region’s SMEs in 2021?
Brexit will most likely affect the Midlands in a similar way to most other regions, complicating supply chains and cashflow over the border with the EU. Some of our clients have had to delay deals due to paperwork being held up, while some UK SMEs have invested in a continental base to overcome increased regulatory hurdles. While these challenges are by no means insurmountable, it is important to ensure that businesses are structured in a way which can accommodate these changes.
How much specialisation did you see in 2020, and is the outlook likely to change in 2021?
We saw relatively little specialisation in 2020, as struggling sectors simply had to take the support which was available. Whether or not this pattern will repeat itself in 2021 depends on the government’s plans beyond the end of CBILS on 31st March, as lending specialisms largely take their cue from government lending. It will be interesting to see what specialisms emerge across the Midlands, as even within the region there is significant variation. In this business landscape, the expertise of local fund managers will be more important than ever.
How have you been supporting businesses through the uncertainty of the pandemic?
Maven has several equity and debt funds, enabling us to support businesses across the spectrum of sectors from their early stages to greater maturity. As an accredited CBILS lender, via MEIF we have been one of the UK’s most active fund managers over the past year, providing finance for companies which are often unable to go to banks. We are adept at shaping deals to clients’ needs, whether that be traditional funding or mezzanine finance which can be utilised to accommodate cashflow.
What our clients value most of all, though, is our personable approach. We do not lend by algorithms, but instead use our decades of collective experience, and this came to the fore when the Covid crisis hit last year. We spoke with our clients about how we could support them, implementing capital holidays to help with repayments where appropriate. Moreover, even in the day-to-day, we do not just lend and leave businesses to it; we try to work out issues proactively, cultivating relationships which some institutions are not able to provide. It may not be a typical approach, but the number of referrals we receive from fellow professionals is a testament to its effectiveness.
By Demetri Theofanou and Graham Hall, Investment Managers at Maven Capital Partners.
