By Daniel Hunter
The second report from Barclays looking at the entrepreneurial landscape in the UK and Ireland indicates that there has been a resurgence in entrepreneurial activity as the number of companies with shares changing hands increased by 14% in the second half of 2012 from the second half in 2011.
According to the latest Barclays Entrepreneurs Index, a total of 24,000 growing companies across the UK & Ireland had shareholder changes in the second half of 2012, compared to 13,000 in first half of 2012 and 21,000 in the second half of 2011.
The report also reveals a steady rise in the financial health of growing companies with shares changing hands. Profitability rose among these companies in each wave of the research, from £1.3m in H2 2011, to £1.7m in H1 2012 to £2m in H2 2012.
The Barclays Entrepreneurs Index is the second in an ongoing series, which tracks one component of the entrepreneurial lifecycle, examining shareholder changes of growing businesses with turnovers of £5m-£200 million. Taking data from Companies House, the report works on the basis that the driving force behind a partial or full change of shareholding in a growing company is likely to be a liquidity event, triggered by individuals selling or transferring their stakes in businesses.
The report finds that the industrial sector, 70% of which is made up of manufacturing companies, saw the most entrepreneurial activity. There was a 30% increase in the number of companies with shares changing hands in this sector, from 4,827 in the second half of 2011 to 6,323 companies in the second half of 2012. Yorkshire, Wales and the North West saw the most significant revival in manufacturing, with the number of companies with shares changing hands in this sector rising by 47% in Yorkshire, 46% in Wales and 45% in the North West.
Amongst all regions in the UK & Ireland, London saw the largest upturn in the number of companies with shares changing hands (36%). Outside of London, the North West saw an impressive rise of 23%. There was also significant growth in employment by these companies, which now have a workforce of some 4.5m people — providing around 14% of total employment in the UK & Ireland. An additional half a million people are employed in growing businesses with shares changing hands than a year ago.
“Since our inaugural Entrepreneurs Index report last autumn, we have watched with interest how the picture for business activity in UK and Ireland has shifted," Richard Phelps, Managing Director, Barclays Wealth and Investment Management.
"It is encouraging to see that active companies have shown not only resilience in the face of instability, but even growth in certain sectors. The rise in profitability of these companies, the resurgence of traditional industries, and prosperity for younger sectors such as technology, as well as reinvestment made by entrepreneurs post-exit, is further proof that entrepreneurs are the engine room of the British economy.”
Alan Edwards, Director of Barclays Wealth and Investment Management in Manchester, comments on the effects of the recent industrial sector revival in the North West, and specifically in manufacturing: “As the birthplace of the Industrial Revolution, we know that the North West’s economy is underpinned by the manufacturing sector. From our work on the ground with local clients, we are seeing a noticeable shift in activity and confidence within the industrial sector, which has had a knock-on effect for other businesses in the region.”
Growth in both the new economy and old economy
Alongside the significant growth in shareholder changes in the industrial sector, the technology sector saw a 40% increase in the number of companies with shares changing hands from 1,313 in the second half of 2011 to 1,838 in the second half of 2012. The finance sector also saw a marked uplift, up by 58% from 1,165 to 1,838.
A number of expert panellists quoted within the Barclays Entrepreneurs Index report attributed the 40% increase in the technology sector to a recent focus on online infrastructure opportunities, which enable internet-based trading to take place. Successful start-ups in this area have the potential to be very attractive to larger players and rather than be afraid that technology giants are going to copy their ideas, entrepreneurs are advised to view any interest as a potential opportunity. “Big companies don’t want to copy; they want you to do it. Once you do it they’d rather buy you out and not have the hassle of creating it,” observes Carl Pihl, founder of cloud-based ticketing platform TicketingHub.
The knowledge sector, dominated by management consultancies , was the only sector which saw a fall in the number of companies with shares changing hands, from 2,800 to 2,295 across the period analysed. A recent report by The Management Consultancies Association echoed the mixed fortunes of the sector, noting a large dip in business confidence in Q3 2012.
Aside from the industrial sector, the sectors with the largest numbers of companies with shares changing hands were in retail and knowledge, with these three sectors accounting for more than half of all entrepreneurial activity. During the second half of 2012, there were 4,567 companies with shares changing hands in the retail sector and 2,295 companies in the knowledge sector.
The North West and London set the pace for regions nationally
Comparing share transactions nationally, nearly all regions saw a boost in entrepreneurial activity. London and the North West saw the most pronounced overall growth across all sectors (36% and 23% respectively). The growth in technology companies was most striking in London and companies in the industrial sector most noteworthy in the North West.
London, the South East and Midlands remain the regions with the largest number of companies with shares changing hands year on year. Shareholder changes were recorded in 3,792 companies in London, 3,510 in the South East and 2,070 in the Midlands.
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