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RSM research shows private equity is the top finance route for middle market businesses

Following the Labour Party’s recent meetings with private equity bosses to discuss future investment, research from RSM UK’s latest ‘The Real Economy Report’ suggests almost half of middle market businesses in the UK will seek private equity finance in the next 12 months.

According to the report, 47% of businesses expect to use private equity finance in 2023, rising from just over a third (36%) in October 2022, meaning it remains the most popular finance avenue to raise capital and ensure growth.

The survey also revealed that over a quarter of businesses (28%) planned to take out bank loans, and a further quarter (26%) intended to use public markets to raise funds. Nearly half of businesses surveyed (44%) said that making capital investments was the main reason for accessing finance in the next 12 months, to improve efficiency and productivity, grow the business, and cut costs. 

The survey also found:

  • Nearly a third (28%) of businesses said restructuring their supply chain was the most important investment priority in the next 12 months, followed by entering new markets (22%) and expanding internationally (19%).
  • Higher energy costs remained the single biggest risk to businesses (14%), but this fell from 21% in October 2022.
  • Almost half of businesses are still consistently accessing finance to make capital investments (44%), up from 43% in October 2022. Over three quarters (76%) of middle market executives said their business was prepared for recession, and although not over the worst yet, there are some reasons for positivity following the Chancellor’s Spring Budget announcement.

Paul Anthony, regional managing partner in the South at RSM UK, said: ‘Private equity remains an available source of capital at a time when other investors have either delayed decision-making or pulled out altogether due to economic uncertainty. There is currently a significant amount of capital available ($1.2tn globally) for private equity investors to deploy, so looking further into 2023 we expect private equity to continue to be active.

‘Private equity is an attractive option for many companies seeking capital to grow, enter new markets and make acquisitions, and seeking strategic partners who can help navigate the current climate.

‘Businesses that have a compelling and robust strategy and growth plan in place that they are already delivering on and have an eye on downside risks will be in a stronger position to attract private equity investors.’

Thomas Pugh, economist at RSM UK, said: ‘The UK economy has shown remarkable resilience in the face of the largest rise in interest rates in a generation and a record-breaking fall in real incomes. The middle market is no exception. Indeed, the RSM UK Middle Market Business Index jumped sharply in Q1.

‘Admittedly, we are not out of the woods just yet and there are a couple of significant risks in the road ahead. The economy may still fall into recession in the first half of 2023 and although inflation has now peaked, it will remain high for the first half of this year, keeping up the squeeze on real incomes. Another area of concern is the large build-up in stocks over the last few months, which firms may find difficult to shift given an expected further downturn in demand over the next six months.’


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