BUSINESS Growth Fund chief executive Stephen Welton has said it plans to ramp up activity in Scotland where the Central Belt and Aberdeen could offer rich pickings.
Mr Welton believes the bank-backed fund has a great opportunity to make a significant impact in a country which contains lots of small firms with good prospects in areas whose potential may have been overlooked.
“There are thousands of interesting entrepreneurial businesses in Scotland,” said Mr Welton. “I don’t accept that the only place you find entrepreneurial activity is around London, I think one of the problems with the UK is that it’s so London and South East-centric.”
Mr Welton has led the £2.5 billion fund since it was launched by giants including Royal bank of Scotland and Lloyds Banking Group in 2011 at the prompting of the UK Government amid claims banks weren’t doing enough to support small businesses.
The fund has shown its interest in Scotland by investing £135m in 17 companies to date. The portfolio includes the STATS pipeline engineering firm in Aberdeen, Glasgow’s M Squared Lasers and Arran Aromatics.
The total committed in Scotland represents a disproportionate, 16 per cent, share of the £850m invested in the UK.
But Mr Welton believes there is scope to do much more in Scotland.
He noted: “I continue to believe that the Central Belt is an area that will be rich in opportunity and I would like to see us doing a lot more there.”
Mr Welton reckons the Central Belt contains lots of interesting businesses in a range of sectors, including traditional industries, but believes many firms are reluctant to take on external investment.
The fund hopes to be able to overcome that reluctance because it only takes minority stakes in firms and will hold them for the long term. Private equity firms tend to want to take control of the firms they back and to sell them on relatively quickly.
Fund executives are spending lots of time trying to raise awareness of its offer across Scotland.
They are working on two deals in BGF’s Edinburgh office and are in talks with the owner of a Glasgow leisure business which Mr Welton hopes will join the portfolio.
“He would never ever have thought about talking to an institution but he’s met the team here and got comfortable with them,” said Mr Welton.
“Once we make more investments in a place like the Central Belt we will definitely do more.”
The fund also believes now is a good time to continue investing in the oil and gas sector centred on Aberdeen in spite of the crude price plunge.
This has posed big challenges for firms in the oil services sector, in which the fund has invested heavily.
Mr Welton said oil services firms may be in survival mode but those that keep investing in their core businesses and retain key staff will prosper when the market recovers.
“The opportunity for us is to look through the cycle, because it will go up and down,” he said. “I actually think in the next five years the potential in Aberdeen is greater than it was.”
The former JP Morgan private equity executive believes the fund could play an important part in helping the North Sea industry fight back by using new technologies to boost efficiency.
It is working on a plan to link its investment expertise with the operational know how of oil and gas firms and entrepreneurs to help maximise the potential of small companies with interesting technology.
“This is a highly innovative venture we are looking at which is really combining with some industry experts and some operators from the oil and gas sector to see if we can collaborate in a more formal way to try and identify and to commercialise some of these early stage businesses,” explained Mr Welton.
“I hope that’s something that could come to fruition in the next month or so, it’s quite advanced.”
Mr Welton believes the fund’s achievements in its first five years have confounded the sceptics who thought it was a PR stunt dreamed up by the banks that founded it.
He believes the fund has shown it is possible to make money in a sector that big private equity firms have lost interest in, and to contribute to the health of UK plc in the process.
The fund has invested in more than 125 companies of the kind that are expected to help power growth in the economy and employment.
While it has only sold six investments the deals have generated healthy returns.
“We haven’t had any business failures. Five years in that’s pretty extraordinary,” said Mr Welton.
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