PRINT THIS PAGE Grin up North26/09/2007. Source: August Equity/Informer. Dominic Graham
The north of England is booming, with businesses in many sectors enjoying unprecedented growth. And, as Informer discovers, private equity can take much of the credit. To those living in other parts of the UK and overseas, the dominant perception of "the North" in the late 1970s, '80s and early '90s was one of declining heavy industry, industrial strife and increasing unemployment, particularly in the coal mining, shipbuilding and steel industries.
How things have changed.
"The North is undergoing a period of rapid economic growth," says Paul Callaghan, former chairman of Sunderland-based collaborative software provider 4Projects. "According to the CBI, the North East is now enjoying the fastest economic growth of any UK region outside London and the South East. "For too long, perceptions of the North East were shaped by The Likely Lads and Auf Wiedersehen, Pet. These days, the "likely lads" are likely to have degrees in software engineering."He notes also that manufacturing and engineering is becoming more "high tech", Newcastle is developing a reputation of being a "science city", while Teeside's chemical industry has attracted many millions of pounds of investment.
Vibrancy
John Wall, meanwhile, an independent adviser and director of alternative fuel provider Proton Power Systems, says there's plenty of evidence of vibrancy in the North. "Just look at the Tanfield Group, which went from virtually nothing to a £500 million capitalisation company in 12 months," he says. "Staggering, really."
Proton itself moved from a high-cost, low-volume business to a low-cost, high-volume operation. "The stakeholders we've had in recent years - such as Volvo and Karl Watkins - wouldn't have been so keen to get involved a decade or so ago," adds Wall.
For many years, the North East has successfully attracted much foreign investment. For example, at its Sunderland UK base from which it has operated since 1984, Nissan builds 60 per cent of its vehicles sold in Europe. It has also been ranked as Europe's most productive car plant for seven years running.
But success is also being enjoyed by more medium-sized British businesses in the North, and one of the key reasons is the local workforce, according to Stuart Warriner, partner and head of corporate finance at PricewaterhouseCoopers in the North. "The North East was once an area that relied too heavily on foreign investment in manufacturing," he argues, "but it is now fighting back with homegrown businesses. The region is a great place to start a company. Excellence in the North comes from straight-talking, honest, hard-working people."
A similar level of prosperity is evident in England's North West. "Lots of money has poured into Manchester and the whole region is benefiting from the economic boom," reveals Manchester-based Mike Reeves of Clearwater Corporate Finance. "You can see it in the redevelopment that has taken place and many people have moved into the city centre to live. Lots of the big service providers are also relocating here. Plus there's still a healthy industrial base, which has entered another phase in its development."
But does the region still suffer from a perception problem? "If you're based in the North it's hard to know how others really perceive you," Reeves replies. "But I think perceptions changed long ago. Even if there is the misconception that the North has an aging industrial base, that's not borne out by the amount of capital coming into the region."
Across the Pennines, Paul Rose, managing director of Yorkshire-based kitchen manufacturer Rixonway Kitchens, is in no doubt his region was looked down upon. "Leeds has suffered in the past; it was seen as a second division player. Now it's very much in the premiership. As well as investment, the infrastructure has improved. Business parks have sprung up everywhere. Other areas, such as Bradford, are looking at Leeds, seeing what's possible and starting to expand too."
Changing modus operandi has increased the success of many companies too. "If you consider industrial products and services, for example," says August Equity partner Sam Watkinson, "companies are now outsourcing non-core activities to lower-cost manufacturers, enabling them to concentrate on core activities. Add to this benign interest rates and the relatively low cost of debt in the UK, and firms have been able to invest internally, grow organically and win new contracts."
Good fortune
Commentators and stakeholders agree that private equity has done much to improve Northern fortunes. "The increase in M&A activity in the North has led to increased confidence and expectation," says Watkinson. "As a result, we've seen considerable growth in the deal-doing community here. Private equity provides a certainty of funding and a belief we can help grow businesses. Most trade players can't rival us in this. The outlook remains positive for businesses that have adapted their model. A quality business will always rise to the top, but I'd like to see a continuation of the economic position the UK has been able to operate in." Reeves adds: "Private equity has given businesses in the North an alternative - something they can use to develop and grow. It has given firms the opportunity to change."
And he sees no reason to believe that the good times will end any time soon. "Interest rates, while they have been going up slightly, are still relatively low, so the economic signs are good. The high level of M&A activity will continue to attract attention here, which is very good."
Warriner is similarly optimistic: "You only have to look around the skylines of the major Northern cities to appreciate the pace of change. The vibrancy of the region's professional services market - particularly in Leeds and Manchester - demonstrates how robust the region has become. We are currently acting for German, Norwegian and Australian organisations looking to invest in businesses here."
August Equity is a private equity firm investing in UK-based companies in sectors including healthcare, media and technology, industrial products and services and consumer products and services. The firm also publishes Informer magazine, providing news and opinion on private equity and alternative investments.
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