How UKSE investments can help family business

Research conducted by independent economic advisory firm Oxford Economics earlier in the decade showed the 4.8 million family firms in the UK made up 86 per cent of all private sector businesses.

Through their daily operations, they employed 13.9 million workers or 52 per cent of private sector employment, contributing £575 billion to the UK economy.

Family-owned businesses represent a significant presence in society, particularly in the West Midlands and they will be weighing up their options for the year ahead in the face of strong headwinds.

UKSE makes minority equity investments in a range of businesses including family companies, ensuring management stays in control and offering a flexible exit policy. Unsecured loans up to £200,000 are also available, often without the need for personal guarantees.

We celebrated our 50th anniversary this year, having invested in many family-led firms since our inception in 1975. We therefore have a great pool of experience to draw upon.

Our driving force is to generate growth, create jobs and bolster the economy rather than be focused on narrow financial returns. From our Midlands office we support SMEs across Birmingham, the Black Country, Coventry, Staffordshire and Telford.

Family businesses can be reticent about looking for investment, particularly where a partner like UKSE takes an equity stake.

With this in mind, I have put together tips for firms looking to external equity, aimed at tackling some of the misconceptions we overcome at UKSE when it comes to equity deals.

One of the most common concerns is that equity investment means losing control. In reality, few investors want to take a majority stake in the business, but some will take more than others and have investment agreements that can lead to them taking more.

UKSE typically buy between 5 per cent and 25 per cent of the equity in any business.

We invest in businesses because we believe in their leadership, their vision, and their potential. Our role is to support and act as a critical friend. We bring strategic insight, networks, and experience, but the management team are the experts in running the business, and we are buying into them.

Another misconception is that investors always push for aggressive growth and impose sometimes hard conditions when that growth is not achieved. We all know that no business plan survives contact with reality. We are interested in patient, responsible growth that creates jobs and helps the local economy.

We work with you to assess opportunities that are achievable, and strategically sound. Our aim is to help you grow in a way that strengthens, not stretches, your business. We are also fairly relaxed if you just want to carry on with business as usual.

There is often a fear among family businesses that equity investors are only in it for a quick win and a short-term exit, perhaps five years, often with an investment agreement that gives the fund an ability to force a sale. The better way is to invest on a patient capital basis, and we are long-term partners, if you want us to be.

At UKSE we have investments where we have been in and out in less than a year, and others where we have been in for 30 years. Our exit is at the discretion of management as we cannot force a sale. Our investment timeline is based on sustainable value creation, not a five-year business plan.

Finally, some firms worry that bringing in an equity partner means constant interference in decision-making, particularly for the family run business where control is fairly concentrated. But you may be surprised to know you do not have to go through hoops and you do not need to get decisions vetted.

A lot of equity funds take at least one seat on the board. We like to sit in on board meetings as observers, but at UKSE we do not take voting rights. Our participation is about governance and guidance.

We contribute where we can add value, whether that is strategic planning, risk management, or helping you navigate complex decisions in a constructive way.

In summary, the key concepts that describe our approach to equity investment is patience and flexibility.

To find out more about UKSE, visit www.ukse.co.uk

Pictured from left to right: UKSE regional executive Mark Lowe and Steve Grice