BVCA Comments On Economic Impact Of Private Equity In UK

by Jason Gorringe, Tax-News.com, London

18 February 2008

Private equity-backed companies continue to be a significant driver of the UK economy and its global competitiveness, according to a survey conducted on behalf of the British Venture Capital Association(BVCA).

Private equity-backed companies create jobs at a considerably faster rate than other private sector companies, according to the poll, which is the ninth such review undertaken for the BVCA. Over the five years to 2006/7, the number of people employed worldwide by UK private equity-backed companies increased by an average of 8% p.a.

This compares dramatically with FTSE 100 and FTSE Mid-250 companies, at 0.4% p.a. and 3% p.a. respectively, the Association suggested. Furthermore, 84% of responding companies said their growth was organic, rather than by acquisition, since they had private equity backing.

It is estimated that companies that have received private equity funding account for the employment of around 3 million people in the UK, equivalent to 21% of UK private sector employees.

Private equity-backed companies also boost the UK economy, the survey results suggested. Over the five years to 2006/7, on average private equity-backed companies’ sales rose by 8% p.a., compared with FTSE 100 companies (6% p.a.) and FTSE Mid-250 companies (5% p.a.).

Exports grew by 10% p.a., compared with a national growth rate of just 4% and corporate investment rose by 11% p.a., compared with 3% nationally. In addition, R&D expenditure increased by 14% p.a., compared with national growth of 1% p.a.

91% of responding companies said that without private equity, their business would not have existed at all, or would have developed less rapidly.

The BVCA explained that: "Private equity investment is more than just the provision of capital. Nearly half of respondents listed strategic direction, financial advice and help with contacts as the three key ways in which private equity houses had helped with the development of their businesses."

For the financial year 2006/7, it is estimated that private equity-backed companies generated total sales of GBP310b, exports of GBP60b and contributed nearly GBP35b in taxes.

Accumulated over five years, total sales revenue of these companies adds up to an estimated GBP1,331b, with export value of GBP188b and tax contributions totalling GBP140b.

Recommended