A new private equity fund for small growing companies established by the UK banks
On 13 October 2010 the Business Finance Taskforce – comprised of CEOs and senior executives from Barclays, HSBC, Lloyds Banking Group, RBS, Santander, Standard Chartered and the British Bankers’ Association – announced the establishment of a £1.5 billion “Business Growth Fund” (the Fund) as “a new source of help for growing companies”.
On 9 February 2011, the Chancellor of the Exchequer, in his statement on banking to Parliament (“Project Merlin“), announced that Barclays, RBS, Lloyds and HSBC were committing an additional £1 billion to the Fund.
If these commitments are carried through, the Fund will be a potentially important source of new equity capital for smaller, growing companies.
UPDATE 19 May 2011: The Fund has now launched. See our post here.
There are echoes in the Fund of the early days of the private equity firm 3i.
The early days of the 3i and the Fund, compared
On its website, the genesis of 3i is described: “3i’s roots were laid through the establishment of ICFC (Industrial and Commercial Financial Corporation) and the FCI (Finance Corporation for Industry) in 1945 under the UK’s labour government led by Clement Atlee following the second world war. The ICFC was established to serve small and medium sized businesses through the provision of long term and permanent capital (typical investments of £5,000-£200,000). It was exclusively funded by the major clearing banks and the Bank of England, who collectively agreed to provide share and loan capital up to £45m….”
In a similar way, the Fund has been established by the UK’s major banks to support smaller growing companies: “Companies in the £10m to £100m turnover range can play an important role in leading the UK’s economic recovery, yet can often find themselves in the so- called equity gap, falling between initiatives for small business support and those for larger companies. The Business Finance Taskforce will therefore launch a new Business Growth Fund to support these businesses…The fund will offer between £2m and £10m to these companies, in return for an equity stake in the business. The investment provided would be in the form of equity capital…The minimum equity stake in any business will be 10 per cent and the average duration of the investment will be expected to be five years.”
The Fund’s operation
The Fund will operate through a distribution network with some regional offices in addition to its head office. The Fund’s recruitment campaign indicates that it sees itself as a private equity fund and gives a suggestion of the structure of its regional network, as it is looking for experienced private equity professionals in: (1) Scotland and Northern Ireland, (2) the North of England, (3) the Midlands and North Wales, (4) the South and West of England and South Wales and (5) the South East of England.
However, that the Fund does not yet appear to have its own website (although its establishment was announced in October 2010) suggests that it may not be quite as fast-moving as some private equity houses; but as a creation of six major banks acting at the prompting of government, it is unlikely the Fund will be the most agile of capitalists.
Friendly Corporate PSL
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