New independent research published today has shown that investment activity by LDC, the leading mid-market private equity investor, is continuing to support the rebalancing of the economy through its support for small and mid-sized businesses in key sectors across the UK regions.
Carried out by Good Economy Partnership, the study – entitled Rebalancing the Economy: The Social Value of UK Private Equity - was based on a benchmarking analysis of LDC’s portfolio over a 10 year period to early 2015, spanning investment in more than 150 companies.
The aggregate data was assessed against five key economic policy areas aimed at driving balanced economic growth. These include: investment in small and medium sized enterprises, export-intensive sectors, regional economies outside of London and the South East, disadvantaged communities and investment during recession.
The findings were used to produce a ‘social value scorecard’ which benchmarks performance with national averages across a total of 14 social value indices - an approach endorsed by industry trade body, the British Private Equity & Venture Capital Association (BVCA). Results were then compared with the same exercise carried out in 2013, demonstrating significant progress in several areas.
Key conclusions include:
SME growth: LDC’s portfolio growth performance is three times greater than the national average for all SMEs. Aggregate employment increased by 27% and aggregate turnover grew by 20%. Indeed, two-thirds of portfolio businesses grew by both employment and turnover during the period of investment.
Rebalancing by Sector: LDC’s portfolio companies are 2.7 times more concentrated in sectors whose growth is key to rebalancing the UK economy, notably manufacturing and export-intensive industries, compared to the wider UK population.
Rebalancing by Geography:
• Investing in Regions – LDC is 1.7 times more active in investing outside London and the Greater South East than the rest of the UK private equity sector, underlining its exceptional contribution to rebalancing economic growth and employment by region.
• Investing in Disadvantaged Areas - 58% of all of LDC's investee businesses are located in areas where the local unemployment rate is higher than the national average of 6.2%. This compares favourably with the national average share of 49%.
Investment commitment - LDC invested strongly through the recession and the recovery with £1 billion invested in the last three years. The firm plans to invest a further £1.2 billion of equity capital in growing businesses over the next three years. Recovery has seen the UK private equity sector as a whole and bank lending improve, albeit from a very low 2008 base.
Mark Hepworth, Co-Founder of Good Economy, said: “The latest scorecard shows that LDC’s investment activity is highly favourable to the UK’s balanced economy objectives, specifically in supporting SME growth, rebalancing by sector and region, meeting external finance demand outside London/Greater South East and investing in disadvantaged areas. In total, it outperforms national and sector benchmarks in 13 of the 14 social value scores.
“In its widest context, the study also demonstrates the potential of private equity at large as an asset class. When done right, it can undoubtedly be a force for social good.”
Tim Hames, Director General of the BVCA, said: "The ability of private equity to drive transformational growth and shareholder value is well understood, but its positive social impact far less so. This is an important contribution to that debate which will help to broaden understanding of the asset class and its power to rebalance economies and revitalise communities. Credit should go to LDC for recognising the importance of demonstrating this to its stakeholders, including the management teams it supports and their employees."
Chris Hurley, Co-Head and Chief Executive of LDC, said: “There is broad consensus that the UK’s economy remains unbalanced, which is leaving large parts of society vulnerable to risk and creating an uneven landscape of opportunity. There is an equally broad consensus that the UK business community has a role and responsibility to help address what is a complex and growing problem.
“What this report shows is that LDC remains a high social value contributor though its investment activity with an improving positive impact, building on our original assessment in 2013.
“Our approach to private equity investing - based on a committed presence in the UK regions, through-the-cycle support, a focus on small and mid-sized companies and a major commitment to backing the manufacturing and engineering sectors - is helping the UK to meet its goal of a more balanced economy. This also aligns with the broader goal of Lloyds Banking Group of helping more business, households and communities prosper.
“The fact that we’ve achieved this alongside a period of exceptional economic value creation underlines an important point: the two agendas are not opposed. What we’re equally proud of, beyond the impact of our direct investment, is the contribution of our investee companies in this regard, which are rightly celebrated in this important piece of research.”
A full copy of the report is available at: http://www.ldc.co.uk/socialvaluereport.