An often-overlooked factor in Yorkshire’s success in recent years is the maturity and breadth of the local funding market. For me, it is difficult to overstate how critical access to capital has been in fuelling local economic growth.
Yorkshire is blessed to be the home of several major financial institutions and their subsidiaries. Coupled with the extensive network of advisers, this means that our local businesses are some of the best placed in the country to get the financial firepower they need. The breadth of funding options now available is very exciting.
Local examples abound. With regards to equity, and at the smaller end of the spectrum, crowd funding platforms like Crowdcube have become a reliable source of funds for a variety of businesses from estate agents, such as Esale, to beer halls in the shape of Brew York.
Private equity is still extremely active inside Yorkshire. There have been prominent deals such as LDC’s multi-million-pound investment in Knaresborough-based pest control operation Pelsis, and the very active Business Growth Fund’s investment in Saltaire-based Fleetondemand, the mobility as a service technology business.
We have also seen new private equity entrants, such as Three Hills Capital’s minority investment in Castleford’s Sigma Retail Solutions, which provides outsourced solutions to retail customers, Pricoa Capital’s investment in print and marketing operation York Mailing, and SME investment fund Enact’s investment in pet supplies operation Kennelpak.
Less formal equity funding can also be accessed in the region from family and private office funds. Notable examples include Go2 Foods which recently invested in the Real Yorkshire Pudding Co, and CriSerin which backed the ‘free from’ food business, NFF.
The banking community is also busy supporting local businesses. Examples include HSBC’s support for global architectural software operation NBS, and Yorkshire Bank’s backing for Giacom in Hull.
Like equity, we have also seen new lending institutions emerge, such as Apera Capital, which delivered unitranche facilities to iconic snack brand Seabrook Crisps alongside LDC. These unitranche providers are helping businesses achieve their strategic objectives where more traditional lending institutions may struggle.
Yet, while we can celebrate the funding opportunities we have in place locally, we must also remind ourselves of the challenges that the economy faces and that funding to the real economy is fragile.
We are likely to be living with this current economic uncertainty for some time. Rather than speculating what might happen in the coming months, the pertinent question right now is how businesses can emerge from inevitable market volatility in a solvent state and be ready to take advantage of opportunities as they appear.
It is possible that great economic uncertainty and risk could start to weigh down on appetite to lend and on investors parting with their capital. While there are several things we need to see to avert this risk to the economy, the most important action is one that we can all do ourselves.
First and foremost, it is time for good financial housekeeping across the board. Financial institutions need to look at their relationships with counter-parties, review contracts and model their access to liquidity.
And, clearly, this is not only a challenge for financial services – it’s also one for corporates and the real economy. Good housekeeping, therefore, is about looking at the more immediate time frame of the next nine months and addressing some important areas.
As a priority, management teams need to make sure that they have the right funding structures and financing lines in place – and, where necessary, have alternatives mapped out. They should also ensure that they have sufficient working capital to maintain good cash flow and appropriate hedging in place for things like foreign exchange rates, fuel and commodities as appropriate.
In fact, we are seeing many businesses who have bank facility maturity dates in 2019 and 2020 go early and secure facilities now for the next three to five years to take advantage of attractive borrowing rates and tenures.
It is also imperative that businesses have credit insurance arranged to protect themselves against late payments and from customers going bump. And finally, of course, solid business continuity plans need to be developed to help mitigate any major economic or supply chain volatility.
Yorkshire business leaders are pragmatic and they appreciate the challenges that lie ahead. These actions will be a part of strengthening that state of readiness. Not least, it will offer some comfort that we have done what we can.
While we cannot predict right now how or where we will land over the coming months, we can at least be prepared. And with the support of a mature and established financial services community, the region can emerge solvent, stronger and ready for the future, whatever shape it takes.
Chris Stott is a Partner in the Deal Advisory practice at KPMG