The investment landscape is changing and the key beneficiary appears to be the private business sector. Private businesses clearly operate across all sectors and range from small, family owned concerns to large corporates servicing global markets. There are over 5 million such companies in the UK, making them a very significant force.
From the Arcadia Group to McLaren, privately owned businesses are very much at the forefront of UK business. While the stock market used to be the preferred destination for individuals seeking higher capital return opportunities, investors are now increasingly drawn to the private sector. US research company PitchBook has reported that late-stage private equity investment in Europe in the first half of 2015 reached €4.1bn, almost double that of the same period in 2014.
So what is driving this shift in focus from investors towards private companies? One of the possible reasons for this is the increasingly rapid pace of change in business. With their layers of management and heavily regulated responsibilities to shareholders, listed companies can often be slow to react to change. Private companies on the other hand typically have leaner structures and quicker decision making processes that facilitate a rapid response to changing market dynamics. In a global business environment where VUCA (volatile, uncertain, complex, ambiguous) is the buzz word, private companies are therefore often better placed to capitalise on emerging opportunities.
It’s not just equity investors that understand the importance of private companies in generating wealth. The UK Government has also recognised that private companies are just as, if not more, important to the future growth of our economy than public ones. In a pleasing example of action backing up rhetoric, since its inception in 2013 the British Business Bank has facilitated over £2.3bn of investment into private companies.
It would seem that private businesses themselves have also found a new confidence in the role they have to play in the success of the UK economy. One manifestation of this is the election of Paul Drechsler as president of the Confederation of British Industry. Mr Drechsler is just the second private business leader since the mid-1970s to be appointed to this pivotal role, one that is usually reserved for those from large, listed companies. The CBI has been criticised in the past for neglecting the smaller private companies, so this goes some way to addressing the importance of the private sector and giving it the attention it deserves.
One note of caution. The private sector is drawing investment at a phenomenal rate, but there are still challenges and pitfalls. As we enjoy what will hopefully be a sustained period of growth, the risk of overtrading is one which private companies will need to be mindful of. The lean structures that make private companies so fleet of foot can become stretched under rapid growth and the absence of large and diverse shareholders can sometimes act as a brake on financial liquidity.
There are however fantastic opportunities for privately owned businesses, and with some help negotiating the challenges to growth, the time has come for privately owned businesses to really make their mark.