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South West businesses look to M&A to grow

Businesses in the South West could miss out on £4.9 billion1 of untapped growth in 2018.

Our research, Planning for growth, found that in 2018 businesses could leave £72.5 billion untapped potential on the table in the UK. This is the equivalent to creating a new economy the size of Greater Manchester. Or put another way, this level of growth could translate into 1.4 million jobs. In the South West, this figure breaks down to £4.9 billion measured as GVA.

The research also unveiled a sustainable high-growth group of businesses that nationally achieved 20% or more in growth in 2017 – and sustained growth for the past three years2. These Growth Generators are almost five times more likely to be achieving their one-to-two year growth targets than the rest of the market. And they are also nearly ten times more likely to reach their targets than low-to-no growth companies. On top of this financial performance, Growth Generators share a growth mindset based on four key characteristics:

1 purpose-driven

2 invested in top-line growth and willing to seek external funding and engage in M&A activity

3 tech confident

4 networked.

Growth Generators: Regional breakdown

The growth picture for the South West

The South West plays an important part in the UK economy with the second-highest rate of GVA growth (4.3%) in 2016, just behind London (4.4%)3.

On top of this, 62% of the region's businesses that stated talent and skills as an accelerator to growth are confident they can leverage this, more than businesses nationally (55%).

With its mix of sector strengths – from tourism and leisure, financial services and tech – the region’s businesses have high potential for growth.

But only half (52%) of South West business leaders are confident that they will achieve their growth plans for the next three to five years. So what is holding businesses back?

Top 10 barriers to growth

Scaled-down growth ambitions

More South West business leaders (39%) agree political uncertainty, around Brexit for example, is inhibiting growth than those who disagree (23%).

This uncertainty has reduced investment for growth recently. Only 9% of South West businesses have made their most recent strategic investment on revenue growth in the past year. For 82% of companies that investment came three to five years ago.

Tim Lincoln, Practice Leader of our Bristol team, said: “A definite drop-off in recent growth ambition is discernible. However, businesses do still harbour growth plans for the future. The key is to take advantage of opportunities that present themselves without taking on too much risk.”

Mike Beesley, CEO of Bristol-headquartered recruitment specialist Resources Solutions Group, said: “Without doubt Brexit presents challenges, but our psychology is very much that it will also present opportunities. This attitude defines many fast-growing businesses: trying to turn negatives into positives.”

Tech crunch

South West businesses see technology as both a major accelerator and barrier to growth. Encouragingly, a higher proportion of South West businesses believe technology is an accelerator (30%) rather than a barrier (25%) – bucking the national trend.

Tim commented: “Technology is critical to nearly every organisation’s success in today’s market. It’s positive to see that South West businesses are more confident than the nationwide average in their ability to leverage it for growth.”

For example, Bristol-based external facade solutions company Taylor Maxwell has its own in-house IT department that uses bespoke software. Group Financial Director Mark Phillips said: “It's fundamental to what we do. It's allowed us some competitive advantage. With our software, we can schedule deliveries more accurately with our suppliers, thus reducing cancellations and unnecessary amendments.”

Mind the marketing gap

As with technology, South West businesses are more confident than the norm with 34% seeing brand, marketing and sales as an accelerator. Only a quarter view it as a barrier – significantly fewer than the 34% nationally.

Tim said: “Brand, marketing and sales is essential in driving sales and customer engagement. It is heartening to see South West businesses are more confident than most in their ability to leverage it. They need to translate this confidence into effective strategies to drive greater market cut-through.”

Research report
Planning for growth: don’t let uncertainty hold you back Discover the barriers and accelerators to private sector growth
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Comparing our South West businesses to Growth Generators

South West businesses perform well in instilling a sense of purpose as an accelerator to growth. Of those who have stated purpose as an accelerator to growth, 82% of South West business leaders are confident in their ability to leverage this, on a par with Growth Generators nationally.

Businesses in the region also match – or even slightly exceed – Growth Generators in believing M&A is a key priority for strategic growth in the next three to five years. A significant 73% of South West businesses view M&A as a top priority, compared with 70% of Growth Generators.

In addition, 62% of businesses in the region that have identified talent, skills and innovation as a growth accelerator are confident that they can leverage this. This is almost on a par with Growth Generators (66%) but well ahead of businesses nationally (55%).

Tim commented: “We know that the development of skills and talent attraction is a huge focus for businesses in the South West. It is encouraging to see that they are confident in their ability to nurture their talent pools for the future growth of their businesses.”

As we have seen, South West businesses are confident they can leverage technology as a growth accelerator. Of South West businesses that have identified technology as an accelerator, 54% of business leaders are confident they can leverage this to aid future growth.  However, 14% of Growth Generators cited tech as the highest area of investment in recent years compared with 8% in the South West. The region’s businesses need to bring this investment in line with the importance they place on technology to affect growth.

Only a minority of South West businesses and Growth Generators are active internationally. Yet both recognise the importance of growing international activity, with 37% of Growth Generators and 39% in the South West citing it as one of their top five strategies for the next one to two years.

Top 10 accelerators to growth

Based on these findings, there are a number of key questions that businesses in the South West need to consider in order to gauge their strengths across these four critical areas:

  • Is our purpose embedded across all areas of the business?
  • Do we have an M&A and/or external investment strategy that is fit for purpose?
  • Have we mapped our technology and systems requirements against our growth strategy?
  • Are we properly assessing what international opportunities are out there?

Tim concluded: “Businesses that are on top of these issues have the best chance to become Growth Generators themselves and help drive the wider success of the region.”

Case story

Our Growth 365 team has helped Pricecheck increase their exports by 45%

About our research

Our growth survey was conducted between August and September 2017. We heard from 1,000 business owners, CEOs, CFOs or CSOs at businesses with turnover of £10 million to £1 billion across all industries and regions4. We also conducted in-depth interviews with 15 CEOs and/or managing directors from high-growth companies, academics and market commentators5. For more about our research, please see our report, Planning for growth.

References

  1. Measured as GVA (gross value added)
  2. Based on respondents which said in the survey their turnover had increased by 20% or more in the last year
  3. Regional gross value added (income approach), Office for National Statistics, 20 December 2017
  4. For detail on the full demographic breakdown and statistical analysis see the methodology section of our national report, Planning for growth
  5. For a full list of interviewees see the methodology section of our national report, Planning for growth

Planning for growth

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