In depth: SME-fuelling investor BGF cheers Scottish activity in 2023 amid economic turbulence

The Scotland and Northern Ireland team of BGF has reported another strong year in 2023, delivering five successful exits and investing £33 million in the local growth economy.

It was set up in 2011 as the Business Growth Fund to address the “chronic and longstanding” shortage of funding hampering Britain and Ireland’s small and mid-sized enterprises (SMEs), and setting out to generate local connections to “find and assess opportunities”. Now known as BGF, the organisation says it has to date invested not far off £4 billion in more than 560 companies, serving as one of the largest growth capital investors in its jurisdictions.

And the organisation has now hailed its progress last year north of the Border – saying it “backed a diverse range of brilliant businesses” and secured strong exits, as it eyes more activity in 2024 despite the inclement economic backdrop.

BGF’s Scotland and Northern Ireland team has reported what it deems “another strong year” in 2023, delivering five successful exits and investing £33 million in the local growth economy (down from £42m in 2022), part of the picture across the UK and Ireland as a whole that saw it back 44 new businesses and invest £430m.

It describes itself as a minority, non-controlling equity partner with a patient outlook on investments, adding that it looks to provide backing, via capital and expertise, to support companies and management teams to achieve their growth aspirations whilst retaining control, a role that it says is “particularly important” when Scottish businesses are “reporting delays to growth projects because of funding challenges, with the cost of doing business named as a key challenge”.

The report comes just after the Scottish Chambers of Commerce called for the next general election to prompt “real action” to stimulate business growth, with Scotland’s economy currently “stuck in a low growth cycle”, while the Federation of Small Businesses found that the final quarter of 2023 saw small business confidence lose the ground made up earlier in the year.

BGF said that last year, its local investment activities have helped to support acquisitions, new product development, roll-out strategies and succession planning, as well as directly providing working capital and strengthening balance sheets for portfolio companies.

Its Scottish investments in 2023 included a £4.5m investment in Stellar Omada, an Edinburgh-headquartered technology services company; a £2m injection for STC Insiso, an Aberdeen-headquartered software company; and an £8m capital boost for Trojan Energy, which is also based in the Granite City, and has developed and commercialised an innovative “flat and flush” electric vehicle charging system for on-street users. The latter investment was completed alongside the Scottish National Investment Bank as part of a £26m funding round.

BGF's Edinburgh team. Picture: Chris Watt.

Follow-on investments in BGF’s existing Scottish portfolio encompassed a multi-million-pound investment in Scottish Dental Care Group, a national provider of NHS and private dental treatments; and a further £2m investment in MRM Global (now re-branded to Hyble), a provider of marketing technology to the global drinks and hospitality sector.

BGF also pointed out that its five successful exits in Scotland and Northern Ireland announced during the year had a total value of more than £260m, delivering a combined money multiple of 2.3 times. They included Aberdeen-headquartered Stats (UK), which specialises in the supply of pressurised pipeline isolation, hot tapping and plugging services to the global oil, gas and petrochemical industries, and had been BGF’s first investment in Scotland.

It said it ploughed £16m into the firm between 2012 and 2023, enabling it “to expand its international footprint and invest in people and product”, and it then more than quadrupled revenues and “generated a very healthy return for stakeholders on exit”. BGF also last year saw the exit of Kick ICT that was completed in the latter half of 2023 and marked one of the biggest recent deals of its kind, giving the investment vehicle a “strong” internal rate of return of 38 per cent. It came after LDC, the private equity investment arm of Lloyds Banking Group, made a “significant” investment in the Bellshill-based IT managed service provider that was founded in 2015.

Current BGF investee companies include luxury handbag and accessory company Strathberry, which secured an £8m investment announced at the start of 2022, the benefits of which it says include being more confident in its products and decisions and bolster its senior leadership team.

Patrick Graham, BGF’s head of Scotland and Northern Ireland, says the organisation will in 2024 'continue to help ambitious businesses realise their growth potential'. Picture: Lisa Ferguson.

BGF, whose regional Scottish hubs comprise Edinburgh and Aberdeen, also boosted its eco credentials last year, in December achieving B Corp status, meaning it has been found to “meet high standards of social and environmental performance, transparency, and accountability”.

Patrick Graham, BGF’s head of Scotland and Northern Ireland, said: “I’m very happy with the performance the team has delivered [in 2023], particularly given the economic backdrop. Over the last year, we’ve backed a diverse range of brilliant businesses with both new and follow-on funding packages. At the same time, we secured strong exits from five portfolio companies, delivering us a strong rate of return. The results of our 2023 activity demonstrate not only the success of BGF’s investment model, but also the quality within our portfolio.

“In 2024, BGF will continue to help ambitious businesses realise their growth potential. We know that the general market outlook in Scotland, and indeed globally, continues to be challenging. However, despite the wider market picture, we are confident in our pipeline of deals, because it is built on established relationships and a deep understanding of the local SME market, which continues to show remarkable resilience despite what is thrown at it. The variety of success stories we have had in 2023 underlines this.”