Cardiff has been identified in the top 20 local authorities across the UK for equity deals since 2011 according to the British Business Bank’s first annual Regions and Nations Tracker published today.
Also included in the top 20, which accounted for 58% of all equity deals were the City of London, Westminster, Edinburgh, Manchester, Newcastle and Leeds. But economic potential continues to be wasted because of regional disparities in access to equity finance and private debt according to the report.
The report found London, the South East, the North West and the East of England accounted for 86% of equity investment and 69% of private debt investment despite hosting just 55% of UK businesses.
Wales is performing relatively well to the size of its smaller business population accounting for 4% of equity deals and 3% of private debt investment, while hosting 3% of UK small business population.
The majority of equity deals in Wales were in businesses located in the south of the country. Several clusters exist, with Cardiff as the focal point. Recipients in Cardiff, Swansea, Newport and Bridgend represent 37%, 10%, 7% and 5% of investor-investee pairings respectively.
Investors are similarly clustered in Cardiff, with Cardiff-based investors representing 33% of pairings involving Welsh businesses. The second largest is Wrexham with 15% of investors despite businesses in the area only featuring in 2% of pairings.
Catherine Lewis La Torre, CEO of British Business Bank, said: “The lower flows of finance in certain regions and localities reflect a population of businesses operating with fewer choices. These gaps in growth finance are undoubtedly holding back ambitious entrepreneurs and lead to wasted economic potential. This is something the British Business Bank is committed to changing.”
Investors favour short distance deals
Many regions across the UK are heavily reliant on London and the South East for investment. However, Wales has been classed as a ‘mixed geography’ in the report as while the majority of investment pairings are from within Wales (56%), 44% involve investors outside Wales.
The UK’s uneven distribution of growth finance is not driven by a lack of high growth potential business in certain areas of the country but by the presence of local investors. Investors are far more likely to invest in businesses close to their office with 82% of equity investment stakes within two hours of each other, 61% are within one hour of each other.
The preference for short distance deals has not been impacted by the increase in remote working due to Covid-19, the data shows only a slight uptick in the mean and median travel time in 2020.
Rural business owners more pressed into injecting personal funds
Access to growth finance is particularly difficult for rural business owners who are more likely to resort to injecting personal funds into their businesses, especially in the construction sector. The report found 38% of rural construction business owners used personal funds compared to 27% of their urban counterparts. Almost half of all businesses in Wales (45%) are registered in rural locations.
Bethan Bannister, Senior Manager for Wales at British Business Bank, said: “Our Regions and Nations Tracker’s findings underline the fact that Wales has a vibrant financial ecosystem, that boasts a strong in-region investment base, but one that has also forged positive investment links with other regions within the UK, including London and the South East.
“According to the report the number of equity deals conducted in Wales is a little above our share of the UK small business population and the level of private debt investment is on balance with it, demonstrating that our business population is working hard to drive the Welsh economy forward. However, there is still work to do and it’s clear that regional imbalances in access to finance still exist within Wales itself at a more local level, and need to be addressed.”
The British Business Bank’s commitment to address regional imbalances
The Bank remains committed to addressing regional imbalances in access to external finance. As such, 86% of businesses supported by British Business Bank’s programmes are based outside of London, with £943m invested between 2020 and 2021.
The Bank’s core programmes are currently supporting £209.6m of finance in Wales, reaching 3,405 smaller businesses.
Regional fund managers also successfully secured co-investment from other Bank-delivered programmes, such as the Regional Angel Programme and Future Fund to best support local companies.
Top 10 Welsh local authorities for equity deal activity and in-area equity pairings, since 2011:
|Local Authority||Deal Volume Since 2011||Local Authority||% of pairings|
|1. Cardiff||191||1. Cardiff||36.8%|
|2. Swansea||55||2. Swansea||10.3%|
|3. Newport||37||3. Newport||7.3%|
|4. Monmouthshire||30||4. Bridgend||5.5%|
|5. Caerphilly||26||5. Monmouthshire||5.2%|
|6. Bridgend||23||6. Caerphilly||5.0%|
|7. Flintshire||21||7. Flintshire||4.8%|
|8. Rhondda Cynon Taff||20||8. Rhondda Cynon Taf||4.7%|
|9. Neath Port Talbot||15||9. Torfaen||3.7%|
|10. Torfaen||14||10. Neath Port Talbot||3.2%|