Innovation and a broad range of sectors in the East of England – it’s not all tech and life sciences – should shelter it from the toughest of times. David Prosser speaks to the region’s investment and advisory community about its prospects
Despite competition, Cambridge continues to draw in the lion's share of investment in start-ups
Economic pain is rarely shared equally. The UK is widely expected to stay in recession for much of 2023, but the East of England is proving more resilient than most of the country. Economists at EY think it will be one of only a handful of regions to deliver through positive growth, as measured by gross value added, over the years to 2025. Think tank CEBR picks out Cambridge, Ipswich, Norwich and Peterborough as all likely to feature among the UK’s top 10 fastest-growing cities over the next three years.
“We are optimistic about the region,” says Doug Bentley, an East of England-based partner at Grant Thornton. “It isn’t immune to the economic headwinds facing the country and businesses are becoming more cautious – but they are still growing and there is plenty of corporate activity; our pipeline looks very strong.”
Those unfamiliar with this part of the country may assume that it is being carried by Cambridge, now internationally renowned for its fast-growth technology and life-science success stories. However, while Cambridge certainly is still performing strongly, this is a region in which wealth creation has always been shared around – and that remains true today.
“It’s a misconception that any one sector or industry dominates; it’s actually a very broad church,” says Mark Nunny, a growth-stage investor based at the Cambridge office of BGF. “In Cambridge, you do see that hub for technology and life-sciences businesses, but there is plenty of diversity across the region.” Recent BGF investments in East Anglia range from 3sun Group, an offshore wind specialist based in Great Yarmouth, to Diss-based motorsport and automotive group bf1systems and chemicals firm Molecular Products in Harlow.
Chand Chudasama, a partner at one of the region’s specialist corporate finance advisers Price Bailey, shares this view. “Norwich also has its fair share of technology businesses, particularly in the agritech sector, and the corridor between Cambridge and Norwich is full of high-quality engineering and manufacturing businesses,” he says. “On the coast, you’ve got a world-class marine biology sector, but also a number of businesses serving the energy sector – both the offshore oil and gas operators, but also the renewable energy market.”
“There is definitely a local advisory scene with well-established financial advisers, particularly for transactional services, but also lawyers and accountants,” says Chudasama. “Equally, businesses aren’t parochial – they will go beyond the regional if they feel they need specialist advice.”
Alongside Price Bailey, other well-known East of England firms including PEM Corporate Finance, Larking Gowen and FRP Advisory have made a series of acquisitions over the past two years. In addition, leading national firms also have a presence in the region: Deloitte, EY and PwC all have offices in Cambridge, KPMG is in both Cambridge and Norwich, and Grant Thornton has premises in Cambridge and Chelmsford.
Philip Olagunju, head of PEM Corporate Finance and vice-president of ICAEW’s East Anglian Committee, says he and his peers continue to see elevated levels of corporate activity, not least because many have been through an exhausting period. “Owner-managed businesses have had to cope with Brexit and with the pandemic. Now they face a slowing economy – many of them do feel fatigued,” he says. “They’re thinking about ownership transition, whether that’s to a second generation of the family, to an existing management team, to a trade buyer or to a private equity investor.”
Equally, however, some firms are focused on growth, seeking out funding to accelerate expansion. Research from Price Bailey suggests that businesses in the region have been seeking funding at an earlier stage than their peers elsewhere in the country; 50% of business in the East of England that have recently been backed by private equity took investment when their earnings before interest, taxes, depreciation and amortisation were between £500,000 and £2m, the adviser says. “We will continue to see investment for growth,” adds Chudasama.
“The East of England is an established hub for world-class tech businesses, but I think we’ll see many other exciting and fast-growing sectors that will attract investment interest in 2023,” says David Bains, partner and head of East Midlands and East of England at LDC, of the firm’s interest in the region. “We are committed to increasing our presence here – we are actively looking to support more management teams to access the capital and support needed to realise their ambitions.”
BGF’s Nunny shares that goal. The fund has set itself the objective of investing £300m in early-stage and fast-growth businesses across Central and Eastern England over the next five years, but Nunny believes there is also a broader opportunity to help business owners become more comfortable with equity capital.
“We do need to help owners understand how private equity support can help them achieve their growth ambitions,” he says. “Owners in the region are sometimes wary – there can be a perception that private equity is all about an investor coming in and taking over.”
One question that remains, however, is whether vendors will be able to secure the valuations they are hoping for. “Against the current backdrop, buyers may not be prepared to pay what sellers have become accustomed to, either in terms of earnings multiples or profitability,” Nunny says. “They are understandably going to be more cautious, although strong businesses in resilient sectors will continue to see strong valuations.”
Certainly, it would be unrealistic to expect businesses in the East of England to escape the deteriorating national economic sentiment altogether. All the more so because while economists generally see the region as more resilient, there are certain issues that feel particularly acute.
Above all, skills shortages continue to hamper the growth prospects of many firms, with recruitment and retention a problem in every industry in the region. “We hear the same thing again and again from clients,” says PEM’s Olagunju. “There is a war for talent out there.”
The problem is particularly acute in Cambridge, where high house prices are making it difficult to bring people in from other areas of the country. But having said this, high employment rates across the region mean there is little slack in the labour market anywhere in the area.
One growing source of competition for the best people is the start-up community – the number of new ventures in the East of England is now accelerating at one of the fastest rates of anywhere in the country. Data from R3 Eastern suggests almost 7,800 new businesses incorporated in the region in October alone; only Greater London saw larger numbers of registrations.
Research from high-growth analyst Beauhurst suggests that Cambridge and its surrounding area continues to dominate when it comes to investment in these early-stage businesses. Almost twice as many firms in the city and its environs have raised cash this year as those in the next eight locations put together. Nevertheless, Norwich, East and West Suffolk, and Bedfordshire have also seen early-stage businesses pull in new funds.
Some in the region expect this start-up activity to increase further as more mature companies shed jobs in the face of recession, prompting those who are let go to set up on their own. If that proves to be the case, it has the potential to kick-start another generation of businesses in the East of England – and to add to the future pipeline of corporate activity.
The company, based in Tiptree in Essex, was launched by husband-and-wife team Andrew and Jodie Howie in 2004 to sell fresh milkshakes at music festivals. It has grown to become the UK’s market leader in the premium milkshake segment, according to analysis from market research firm NielsenIQ.
To help the business grow further, LDC introduced it to James Lambert, founder of ice cream manufacturer R&R and a former chairman of Burton’s Biscuit Company. He joined Shaken Udder as non-executive chairman at the same time as LDC announced its investment. The company has also recruited a new finance director since the investment process. “We’re backing the management team to further expand the company’s customer base, including into convenience stores, and to continue to develop new products,” says LDC’s David Bains.
Shaken Udder was advised by PwC, which provided corporate finance and financial due diligence support, and Birketts, which offered legal services. LDC was advised on corporate finance and financial due diligence by Grant Thornton, on legal issues by Freeths and by CIL on commercial due diligence.
This was slower than in 2021, when 523 companies raised a total of almost £2.2bn of funding between them in the East of England, but that was a record year, buoyed in part by the fact that some fundraisings were carried over from the pandemic-disrupted previous year. The level of investment seen last year looks very healthy by historical comparisons.
“It’s highly likely that 2022 will prove to have been the second best year on record for the amount invested,” says Henry Whorwood, Beauhurst’s head of research and consultancy. “For all the pessimism about tech’s prospects, capital is still finding its way to some companies in decent volumes.”
The Cambridge Angels network was the biggest funder of high-growth companies tracked by Beauhurst last year, with organisations such as the University of Cambridge Enterprise Fund and the University of Cambridge Seed Funds also figuring prominently in the research.
“It’s a diverse region, but the quality of some of the technology and software companies in Cambridge does stand out,” reflects Grant Thornton’s Doug Bentley.
Crowdfunding groups are also important sources of capital for companies in the region, with Crowdcube and Seedrs both generating significant new investment, according to Beauhurst’s data.
“We are optimistic about the region,” says Doug Bentley, an East of England-based partner at Grant Thornton. “It isn’t immune to the economic headwinds facing the country and businesses are becoming more cautious – but they are still growing and there is plenty of corporate activity; our pipeline looks very strong.”
Those unfamiliar with this part of the country may assume that it is being carried by Cambridge, now internationally renowned for its fast-growth technology and life-science success stories. However, while Cambridge certainly is still performing strongly, this is a region in which wealth creation has always been shared around – and that remains true today.
“It’s a misconception that any one sector or industry dominates; it’s actually a very broad church,” says Mark Nunny, a growth-stage investor based at the Cambridge office of BGF. “In Cambridge, you do see that hub for technology and life-sciences businesses, but there is plenty of diversity across the region.” Recent BGF investments in East Anglia range from 3sun Group, an offshore wind specialist based in Great Yarmouth, to Diss-based motorsport and automotive group bf1systems and chemicals firm Molecular Products in Harlow.
Chand Chudasama, a partner at one of the region’s specialist corporate finance advisers Price Bailey, shares this view. “Norwich also has its fair share of technology businesses, particularly in the agritech sector, and the corridor between Cambridge and Norwich is full of high-quality engineering and manufacturing businesses,” he says. “On the coast, you’ve got a world-class marine biology sector, but also a number of businesses serving the energy sector – both the offshore oil and gas operators, but also the renewable energy market.”
Cultivating deals
Add in the agriculture sector and the significant number of financial services firms with operations in the area – plus tourism – and the East appears to be well-diversified. The support these businesses require is also sustaining a thriving corporate finance sector, spanning both regional businesses and national firms.“There is definitely a local advisory scene with well-established financial advisers, particularly for transactional services, but also lawyers and accountants,” says Chudasama. “Equally, businesses aren’t parochial – they will go beyond the regional if they feel they need specialist advice.”
Alongside Price Bailey, other well-known East of England firms including PEM Corporate Finance, Larking Gowen and FRP Advisory have made a series of acquisitions over the past two years. In addition, leading national firms also have a presence in the region: Deloitte, EY and PwC all have offices in Cambridge, KPMG is in both Cambridge and Norwich, and Grant Thornton has premises in Cambridge and Chelmsford.
Philip Olagunju, head of PEM Corporate Finance and vice-president of ICAEW’s East Anglian Committee, says he and his peers continue to see elevated levels of corporate activity, not least because many have been through an exhausting period. “Owner-managed businesses have had to cope with Brexit and with the pandemic. Now they face a slowing economy – many of them do feel fatigued,” he says. “They’re thinking about ownership transition, whether that’s to a second generation of the family, to an existing management team, to a trade buyer or to a private equity investor.”
Equally, however, some firms are focused on growth, seeking out funding to accelerate expansion. Research from Price Bailey suggests that businesses in the region have been seeking funding at an earlier stage than their peers elsewhere in the country; 50% of business in the East of England that have recently been backed by private equity took investment when their earnings before interest, taxes, depreciation and amortisation were between £500,000 and £2m, the adviser says. “We will continue to see investment for growth,” adds Chudasama.
Growing PE community
Investors are certainly taking an interest, with a growing number of firms putting boots on the ground in the region. In addition to multiple business angels centred around Cambridge in particular, BGF and Foresight are local. BGF’s regional office is based in Cambridge; Foresight, which launched the £100m East of England fund in 2019, also has an office in Cambridge. LDC serves the East Midlands and the East of England from its Nottingham office.“The East of England is an established hub for world-class tech businesses, but I think we’ll see many other exciting and fast-growing sectors that will attract investment interest in 2023,” says David Bains, partner and head of East Midlands and East of England at LDC, of the firm’s interest in the region. “We are committed to increasing our presence here – we are actively looking to support more management teams to access the capital and support needed to realise their ambitions.”
BGF’s Nunny shares that goal. The fund has set itself the objective of investing £300m in early-stage and fast-growth businesses across Central and Eastern England over the next five years, but Nunny believes there is also a broader opportunity to help business owners become more comfortable with equity capital.
“We do need to help owners understand how private equity support can help them achieve their growth ambitions,” he says. “Owners in the region are sometimes wary – there can be a perception that private equity is all about an investor coming in and taking over.”
At what price?
The increasing number of locally based investors can help address this perception, Nunny believes, as dialogue between business owners and private equity increases. The willingness of investors such as BGF to take minority stakes creates another viable option locally.One question that remains, however, is whether vendors will be able to secure the valuations they are hoping for. “Against the current backdrop, buyers may not be prepared to pay what sellers have become accustomed to, either in terms of earnings multiples or profitability,” Nunny says. “They are understandably going to be more cautious, although strong businesses in resilient sectors will continue to see strong valuations.”
Certainly, it would be unrealistic to expect businesses in the East of England to escape the deteriorating national economic sentiment altogether. All the more so because while economists generally see the region as more resilient, there are certain issues that feel particularly acute.
Above all, skills shortages continue to hamper the growth prospects of many firms, with recruitment and retention a problem in every industry in the region. “We hear the same thing again and again from clients,” says PEM’s Olagunju. “There is a war for talent out there.”
The problem is particularly acute in Cambridge, where high house prices are making it difficult to bring people in from other areas of the country. But having said this, high employment rates across the region mean there is little slack in the labour market anywhere in the area.
One growing source of competition for the best people is the start-up community – the number of new ventures in the East of England is now accelerating at one of the fastest rates of anywhere in the country. Data from R3 Eastern suggests almost 7,800 new businesses incorporated in the region in October alone; only Greater London saw larger numbers of registrations.
Research from high-growth analyst Beauhurst suggests that Cambridge and its surrounding area continues to dominate when it comes to investment in these early-stage businesses. Almost twice as many firms in the city and its environs have raised cash this year as those in the next eight locations put together. Nevertheless, Norwich, East and West Suffolk, and Bedfordshire have also seen early-stage businesses pull in new funds.
Some in the region expect this start-up activity to increase further as more mature companies shed jobs in the face of recession, prompting those who are let go to set up on their own. If that proves to be the case, it has the potential to kick-start another generation of businesses in the East of England – and to add to the future pipeline of corporate activity.
Shake it up
While consumer-facing businesses face tough headwinds in the UK, the best will continue to perform strongly, believes private equity investor LDC. In February 2022, it unveiled a minority investment in Shaken Udders, which sells its premium milkshakes through all of the UK’s major supermarkets.The company, based in Tiptree in Essex, was launched by husband-and-wife team Andrew and Jodie Howie in 2004 to sell fresh milkshakes at music festivals. It has grown to become the UK’s market leader in the premium milkshake segment, according to analysis from market research firm NielsenIQ.
To help the business grow further, LDC introduced it to James Lambert, founder of ice cream manufacturer R&R and a former chairman of Burton’s Biscuit Company. He joined Shaken Udder as non-executive chairman at the same time as LDC announced its investment. The company has also recruited a new finance director since the investment process. “We’re backing the management team to further expand the company’s customer base, including into convenience stores, and to continue to develop new products,” says LDC’s David Bains.
Shaken Udder was advised by PwC, which provided corporate finance and financial due diligence support, and Birketts, which offered legal services. LDC was advised on corporate finance and financial due diligence by Grant Thornton, on legal issues by Freeths and by CIL on commercial due diligence.
Innovation investment
Investment capital continues to flow into innovation in the East of England. Data from market analyst Beauhurst suggests that high-growth companies in the region recorded their second-best year ever for fundraising during 2022. By the end of November, more than 400 companies had raised £1.4bn of new funds.This was slower than in 2021, when 523 companies raised a total of almost £2.2bn of funding between them in the East of England, but that was a record year, buoyed in part by the fact that some fundraisings were carried over from the pandemic-disrupted previous year. The level of investment seen last year looks very healthy by historical comparisons.
“It’s highly likely that 2022 will prove to have been the second best year on record for the amount invested,” says Henry Whorwood, Beauhurst’s head of research and consultancy. “For all the pessimism about tech’s prospects, capital is still finding its way to some companies in decent volumes.”
The Cambridge Angels network was the biggest funder of high-growth companies tracked by Beauhurst last year, with organisations such as the University of Cambridge Enterprise Fund and the University of Cambridge Seed Funds also figuring prominently in the research.
“It’s a diverse region, but the quality of some of the technology and software companies in Cambridge does stand out,” reflects Grant Thornton’s Doug Bentley.
Crowdfunding groups are also important sources of capital for companies in the region, with Crowdcube and Seedrs both generating significant new investment, according to Beauhurst’s data.
