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Spotlight on UK scale-up production

  • Start-ups: Number of early stage entrepreneurs fell four percentage points over the last year
  • Growth: Proportion of UK high-growth companies showed marginal growth of 0.7% in 2016
  • Entrepreneur exits: 19% increase in UK M&A activity, but IPO activity falls
  • Access to talent and growth funding are chief Brexit concerns for entrepreneurs

 

New research reveals that Britain enjoyed a five-year high in opportunities for entrepreneurs leading up to the EU Referendum. However a lack of new scale up businesses, and current market uncertainty risk the UK under-performing and could now harm growth, according to the Barclays Entrepreneurs Index. 

 

Strong environment for entrepreneurs

Overall, Barclays’ Index of UK entrepreneurial performance is at an all-time high – up 10 percentage points since 2011 and showing strong progress and recovery after a decline in 2014.

 

The eighth edition of the Entrepreneurs Index brings together environmental measures, such as access to finance and talent, along with entrepreneurial outcomes, such as growth and exit activity, in order to assess the strength of the UK’s entrepreneurial environment.  While data for the second half of 2016 is yet to be published, the UK’s environmental enablers for entrepreneurs are up 13 percentage points in five years and, encouragingly, 4 percentage points higher than in 2015. This shift was driven by greater access to finance and skills, and also gradual improvements in regulation and research & innovation, all of which created optimal conditions for enterprise in the UK.

 

Start-up activity falls

The ‘Total Early-stage Entrepreneurial Activity’ (TEA)  – a measure of the number of people in the UK adult working-age population who are a nascent entrepreneur or owner-manager of a new business – fell by almost 4 percentage points up to the end of 2015, showing the UK is producing fewer businesses with ambitions to scale up. The Entrepreneurs Index also recorded a 4 percentage point rise in the number of active companies from December 2015 to June 2016 (345,000 new incorporations).

 

Increase in exit activity and deals, but a drop in IPOs

The Entrepreneurs Index reveals an increase in the number of business exits. There was a 19% rise in the number of M&As of companies less than five years old, and a record high number of deals from December 2015 to June 2016, up 33%. This jump was led by the UK services sector, which was responsible for the highest proportion of deals in the UK in the year to June 2016, accounting for 23% of all deals taking place, followed by financial services (10%), industrial products and services (7%) and computer software (7%). However, a sharp fall in IPO activity of 0-5 year old enterprises by 36% indicates that there could be a lack of confidence in companies to expand, along with increasing market volatility.

 

From start-up to scale up: a mixed picture across the UK

There was a slight rise in the percentage of high-growth companies within the UK’s SME population, growing by 0.7%, and this demonstrates moderate recovery when compared to the dramatic fall of 21% seen last year. One positive indicator is a rise in the number of companies receiving expansion investment from venture capitalists, which increased by 6%.

 

The picture across the country for high growth companies is varied: every region in England experienced growth, with the West Midlands (+2.7%) and Yorkshire and the Humber (+1.5%) producing the most scale-ups, however Scotland (-2.9%) and Wales (-2.2%) fell. The construction sector created the most high-growth companies (+4.6%), followed by business services (+1.3%), agriculture (+1%), retail (+1%) and customer services (+1%) which were all above the UK average.

 

Akshaya Bhargava, Chief Executive, Wealth and Investment Management at Barclays said: “Uncertainty is part of everyday life for entrepreneurs and those that succeed navigate unchartered waters and adapt to find opportunities to thrive. This year’s Entrepreneurs Index shows that before the EU Referendum, regulations and conditions for entrepreneurs had improved, making it easier to start a business and contributed to a rise in M&A. Until the outcome is fully known, it’s vital that we do everything in our power to deliver a strong environment to sustain UK entrepreneurial growth. 

 

“In order to make great strides and close the scale-up gap, nothing must stand in the way of entrepreneurs’ access to talent, skills and the UK’s ability to attract inward investment. That is why we are focussed on providing specialist support and funding for high-growth companies in order to generate tomorrow’s world beaters, that will in turn drive economic growth and job creation.”

Notes to editors

Barclays High Growth & Entrepreneurs

As a business, Barclays is experienced and committed to helping entrepreneurs and high growth companies every step of the way. From inception to IPO we are experts in helping other businesses grow, with support that goes beyond funding solutions to include skilled advice, mentoring, leading insights and access to essential networks. We are committed to continue supporting a strong pipeline of wealth creation driven by entrepreneurial success for years to come. For more information visit: https://entrepreneurs.barclays/

 

Glossary

  • Active companies – Companies that are ‘live’ in the sense that they are not in the process of liquidation or being dissolved.
  • Deals – Any stake sale of a target company that is publicly announced and results in individual wealth creation of at least £0.2m.
  • High-growth companies – Companies with revenues of between £2.5m - £100m that have increased turnover by at least 33% over the preceding three years and produced at least 10% year-on-year growth for a minimum of two years.
  • IPO – an initial public offering for a company is the first time the stock of a private company is offered to the public.
  • M&A activity – business transactions where units are combined or transferred.
  • Management buyout (MBO) The BVCA has tracked all instances where funds were provided by its members to enable current operating management and investors to acquire an existing product line or business. Institutional buyouts (IBOs), leveraged buyouts (LBOs) and other types of similar financing are included under MBOs for the purposes of this report.
  • Management buy-in (MBI) – The BVCA has measured all instances funds were provided by its members to enable an external manager or group of managers to buy into a company.

Methodology:

The Entrepreneurs Index is a regular series which has tracked the entrepreneurial lifecycle since 2011. For the first time, the Index includes a range of new and historical data, to provide an in-depth analysis from 2011 to 2016.

 

The Index score reflects how the UK has performed in comparison to previous years and in reference to the base year 2011 (score for 2011 = 100) on key measures of entrepreneurial strength.

 

The Index builds on two main pillars: “Environmental Enablers” and “Entrepreneurial Outcomes”. Each of these sub-indexes could be a stand-alone index, as they measure two different aspects related to entrepreneurship.

 

Environmental Enablers

The “Environmental Enablers” sub-index captures how conducive the UK’s business environment is to entrepreneurial activities by assessing four key areas:

  1. Access to finance;
  2. Entrepreneurial skills and access to talent;
  3. Regulatory environment; and
  4. Research and innovation

 

Environmental Outcomes

The “Entrepreneurial Outcomes” sub-index reflects the UK’s entrepreneurial activity at three core stages of the business lifecycle — “start-up”, “growth”, and “exit”.

 

The key datasets used in this report are:

  • Active companies. The number of active companies in the UK as published in the Incorporated Companies in the United Kingdom statistics from Companies House. This data is collected every six months and runs up to June 2016.
  • Deals. A publicly announced stake sale of a target company that results in individual wealth of £0.2m and above. Data is supplied by Wealthmonitor, part of the Mergermarket Group, every year and runs up to June 2016. Sector groupings are based upon Mergermarket classifications.
  • High-growth companies. Data on companies in the UK with revenues of between £2.5m and £100m, and at least a 33% increase in turnover over three years, as well as at least 10% year-on-year growth for a minimum of two of these years, supplied by Experian. The data is collected annually and runs up to December 2015.

 

About Barclays

Barclays is a transatlantic consumer, corporate and investment bank offering products and services across personal, corporate and investment banking, credit cards and wealth management, with a strong presence in our two home markets of the UK and the US.

With over 325 years of history and expertise in banking, Barclays operates in over 40 countries and employs approximately 130,000 people. Barclays moves, lends, invests and protects money for customers and clients worldwide.

For further information about Barclays, please visit our website www.home.barclays .