Securing adequate funding for Britain’s oft-overlooked medium-sized businesses has long been a hobby horse of the CBI employers’ body, and rightly so. Big business has the connections, cachet and muscle to look after itself in financial terms, while the preoccupations and needs of small businesses are almost a piety for politicians of all hues.
But, like a studious, unassuming middle child in a large family, medium-sized businesses are one of the less overtly lustrous linchpins of the British economy.
The CBI refers to them, our version of Germany’s Mittelstand, as the “forgotten army” of Britain’s economic battalions. These unsung businesses most often have a turnover of between £10 million and £100m, while research has shown there are now 35,000 of them in the UK. That is a notable increase on the 20,000 five years ago.
An illuminating statistic of their overlooked value to the country is that our middle-sized businesses represent a little under 2 per cent of companies, but account for nearly a quarter of private sector revenue.
And yet this undoubted success story has a well-chronicled problem in accessing funds for investment. They normally rely on the commercial banking divisions of our banks for capital.
Not for them the ease of investment banking financing and underwriting, or the high street banking, Alternative Investment Market, crowdfunding and so on that small enterprises tap.
A new report published today by the CBI and accountant BDO says the middle-tier funding problem could be addressed by the government offering tax incentives to savers who commit to provide long-term finance for these operations.
That way these growing firms could realise their full potential, and not be hemmed in as they currently are by loans often limited to shorter duration periods, most commonly five years.
Specifically, the CBI is calling on the government to create new long-term lending trusts for savers investing in middle-sized businesses, with tax breaks.
The body also wants the Enterprise Finance Guarantee to be tweaked by rewarding lenders who pledge their money for longer terms.
It is to be hoped these sensible suggestions to Chancellor George Osborne will not fall on deaf ears, and this phalanx of profit-makers get a deserved oiling of their wheels.
Insurers becoming more adventurous
BANks have avoided transformational industry deals in recent years because they have been licking their self-inflicted wounds from the financial crisis.
Insurers, not tainted in the same way by that crisis, have been more constrained in undertaking takeover action by the European Solvency II directive aimed at ensuring they have adequate capital backing for their operations.
But insurers are emerging from the organic growth shadows to get mergers and acquisition activity moving again. Zurich yesterday made a £5.6 billion recommended takeover proposal to British rival RSA.
Earlier this year Aviva took over UK rival Friends Life, while Exor of Italy acquired New York-listed PartnerRe. Consolidation focuses boardroom minds, and others in the insurance sector will now be wondering whether the gathering impetus is with takeover activity and they risk getting left behind as others steal an M&A march.