A new report released on Monday by Barclays revealed that there have been 38% fewer shareholder changes in growing companies in the UK & Ireland in the first half of 2012 than in the second half of 2011. The Barclays Entrepreneurs Index shows that shares in 13,000 companies changed hands between January and June, compared to 21,000 in the previous six months.
The profitability of those companies which have seen a change in shareholding across the two periods rose by 29%, to an average of £1.7m, suggesting that the health of these businesses improved in the first six months of this year.
The average operating age of these organisations is 20 years, indicating that these share transactions were not ‘quick flips’ and that business owners have invested much of their working lives into setting up and running them.
The report is the first to track 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.
“For good reason, entrepreneurs have been branded the ‘lifeblood of the economy’. They are catalysts of job creation and of economic growth. Ultimately, their efforts lead to wealth realization for individuals, communities and countries. This is why we have launched an index which monitors shareholder changes of growing businesses in order to provide a snapshot of the entrepreneurial landscape. A more buoyant environment should lead to greater investor confidence – the more likely the exit, the more likely the initial investment,” Richard Phelps, Managing Director, Barclays Wealth and Investment Management, at the launch of the report, said.
“The decline in the number of shareholder changes in growing companies probably indicates that it is harder for businesses to be sold, mainly due to the continued uncertainty in the global economy. Acquirers are less willing to take risks, and the business owners themselves are more likely to sit it out until conditions improve. Some have used this period to cut costs, focus on key clients and reduce inventory, therefore becoming healthier. For these more profitable and therefore ‘attractive’ companies, there are buyers. It is difficult to know whether this is a short or long term trend, but, based on this data, business owners have been investing a significant amount of time into their ventures and need to continue managing their businesses and associated risks further into the future,” Richard Phelps said.
The report finds that the sectors which had the most shareholder changes across the UK & Ireland are industrial, retail and knowledge. These three sectors accounted for over 64% of share transactions in the first half of this year.
However, all of these sectors saw a fall in entrepreneurial activity in the first half of 2012 compared to the second half of 2011. The number of companies which saw shareholder changes fell by 33% in the industrial sector, 42% in the retail sector and 48% in the knowledge sector (which includes media, technology, consultancy, legal, and accountancy businesses).
While the findings show a decline in shareholder activity across most sectors, the average profit of these businesses has risen across all sectors other than finance, utilities and property.
Colin Stanbridge, CEO of the London Chamber of Commerce, believes that there is a cycle of knowledge shifting between different industries. “Entrepreneurs are more likely to return to a similar or related sector where they can apply their expertise, rather than the same sector where they would only be reinventing the same business. Serial entrepreneurs can get bored very easily and won’t retire at a young age or even at an old age. Making money is not the sole object for reinvestment; money is just the marker for success.”
Looking at the profile of the entrepreneurs themselves, women account for a quarter (25%) of owners of growing companies that experienced shareholder changes – a proportion which remained steady throughout the period analysed. There are variations across the regions of the UK & Ireland in this gender divide, with Scotland home to the highest proportion (33%) of female private business owners, and Wales home to the lowest proportion (11%).
The report shows that there are concentrated areas of business success stories within different regions across the UK & Ireland.
London and the Republic of Ireland saw the biggest increase in proportion of growing companies which experienced shareholder changes between the second half of 2011 and the first half of 2012. For London, growth was particularly significant in the finance sectors, which increased by 76%.
The Midlands also showed resilience across all sectors, with the report showing a particularly marked increase in shareholder changes in the finance (112% growth) and utilities (108% growth) sectors. Entrepreneurial activity in the property sector was striking in both the North East and the North West, increasing by 130% and 83% respectively.
There was a decline in share transactions in growing companies in Scotland and Northern Ireland. Northern Ireland saw the largest decline of 100% in the property sector.
London and the South East remain home to most of the entrepreneurial activity, with around 2,000 companies seeing a shareholder change in each region.
The most profitable businesses were in London, Scotland and the North East, where the companies had average annual profits of £3.45m, £2.58m and £2.01m respectively.