regional spotlight
Birmingham and the Midlands
The Midlands is a region steeped in manufacturing while also having a strong service sector. In our latest Regional Spotlight, Venture Finance’s Guy Walsh and Cliff Meek discuss how manufacturing growth and increased transactional activity are creating demand for finance
Once characterised as the ‘workshop of the world’, the Midlands remains a hugely important centre for manufacturing and industrial production continues to drive the local economy.
Despite some difficult economic headwinds, the region is continuing to make progress. For instance, figures published in July of this year by the Office for National Statistics showed unemployment in the West Midlands falling more quickly than any other UK region in the second quarter of 2011.
This trend is driven by increasing demand for exports. Commenting on these figures, Richard Halstead, Regional Director of the Engineering Employers Federation attributed the fall in the jobless total to a “manufacturing-led recovery,” adding that success at the iconic Jaguar Land Rover operation was having a beneficial ripple effect on the economy as a whole.
Looking at the region’s economy from the perspective of Venture Finance, Business Development Manager Guy Walsh fully concurs with the view that manufacturing is leading a resurgence in commercial activity, adding that renaissance is in turn creating demand for finance.
“The Midlands is all about manufacturing,” he says. “And what we’re seeing now is that manufacturing companies are experiencing growth and they are looking for ways to finance that growth,” he says.
In common with patterns that Venture has seen elsewhere in the country, much of that demand is focused on progressive refinancing as businesses seek to ensure they have sufficient funding in place to address the working capital and cashflow issues that arise when they begin to ramp up production. However, Guy also detects rising demand for acquisition and buy-out funding. “We’re seeing more transactional deals,” he says.
Guy’s responsibilities are focused mainly on receivables finance deals, but he emphasises that businesses often require additional facilities. “This year we’ve also done four EFG loans and a cashflow loan for a management buy-out,” he says.
As Guy sees it, ABL finance is particularly appropriate in a manufacturing economy where businesses are rich with fixed assets can leverage not only against receivables, but also against plant, machinery and property.
Demand for ABL solutions has been boosted by the limited availability of funding from other sources. “Businesses are going to their banks and finding that they being asked for massive arrangement fees and in some cases they are being asked to give up equity,” Guy says.
Private Equity Interest
Venture’s clients in the Midlands range from SMEs through to medium-sized businesses with complex financial requirements. These medium-sized companies are often on the radar screen of private equity (PE) investors who are in turn increasingly looking at ABL as a means to fund transactions.
“There has been something of a sea change in the way that PE houses are looking at funding,” comments Cliff Meek, Regional Director for Structured Finance at Venture. “In the past, they have tended to be wary of ABL but today we have become increasingly included in the mainstream funding mix.”
One reason for that change of perception is the new lending environment created by the financial crisis. These days it has become much more difficult to strike leveraged buy-out deals based on high multiples of EBITDA. As a result, investors are looking at alternative deal packages and, in particular, the role that ABL solutions can play in financing transactions. “This is creating a real opportunity for us,” says Cliff.
Rising interest in ABL on the part of owner managers and PE investors means that ABL is making a significant contribution to the vibrancy of the Midlands economy. “The liquidity we are providing is enabling owner managers to grow their businesses, either organically or through acquisitions,” says Cliff.
Looking to the Future
The Midland economy has taken its fair share of knocks over the past few years, with the sale of MG Rover and the subsequent move of the production facility to China being one of the biggest setbacks. Equally, the region has not been immune to a process of de-industrialisation that has affected the whole of the UK.
However, the Coalition Government’s pledge to rebalance the economy towards manufacturing is seen as welcome news in the region and according to Guy Walsh, businesses have been rising to the challenge of growing industrial production. “Manufacturers in the region – and Jaguar Land Rover is a good example – have been doing a fantastic job over the past few years and we see that continuing.”