However, despite these challenges, Newable Capital, along with the broader SME focussed capital market, has been active throughout the pandemic, supporting and investing in exciting SME businesses across the UK.

With significant amounts of available capital, access to external debt markets and industry expertise, equity investors are uniquely placed to accelerate the recovery and future growth of SMEs, as well as enabling founders and shareholders to realise value in the businesses they have taken years to build. However, choosing the right partner for you and your business is paramount to future success.

The current UK SME market

Many companies who have made it through the pandemic, have emerged with weakened balance sheets and limited cash reserves and, despite the opening up of the UK economy, relaxation of trading restrictions and growth in optimism, there are still significant risks and uncertainties. These risks and uncertainties are likely to impact the future growth and returns for both businesses and shareholders.

From a business perspective, the wind down in Government financial support coinciding with the increase in inflation and wages, as well as the forecast increases in interest rates and taxes are all expected to put pressure on cash flows and earnings. This is expected to be further impacted by the continuing disruption of global supply chains, locking cash into extended working capital cycles or delaying the timelines and returns on investment.

UK SMEs have taken on an estimated £75bn (link below) of debt during the pandemic from Government-backed loan schemes to support operations, so additional external debt is unlikely to be forthcoming or the correct approach for companies looking to weather these uncertain times as well as grow and invest in the future.

Additionally, from a founder or shareholder perspective, the increased probability of higher tax rates, both income and capital gains, in the future means the current market likely provides the best opportunity to maximise their returns.

Opportunities to thrive

For shareholders and ambitious management teams, the businesses that are best placed to capitalise on external investment are those that have been resilient through the pandemic, are in a long-term growth market or are able to benefit from the significant future Government investments that have been announced.

We expect to see significant opportunities for companies in sectors such as technology and business services, many of which have grown over the last 18 months, as well as industries that will benefit from Government investment including manufacturing and engineering, especially those related to sustainability or climate change or will assist in helping the Government ‘level-up’.

For founders looking to realise value in the companies they have built or transition day-to-day operations to a second-tier management team, the current market provides a fantastic opportunity to maximise returns and to find a partner to invest in and support the company through its next stage of growth. However, choosing the right partner is critical to future success.

Choosing the right investment partner

For many UK SMEs, whether they have struggled or thrived over the pandemic, due to the current market uncertainties and operational difficulties, the path to recovery or growth is likely to be protracted. Businesses need a partner who provides the opportunity and support to grow sustainably without pressure on operations or liquidity.

External equity investors may add the most benefit to companies and provide the best opportunities for success if and only if they value and build strong relationships with existing management teams; have patient capital, without the need to sell and return money to investors in the short-term; have limited reliance on debt to drive returns; and sector expertise to inform and support management strategy.

For UK SMEs and their current shareholders, despite having endured their toughest period in decades and having to face considerable future uncertainties, there are significant opportunities to realise value and achieve future growth. With the appropriate investment partner focussed on sustainability, long-term growth and quality relationships, companies and shareholders are likely to thrive.

Newable Capital has made four investments over the last 18 months in companies within technology, passive fire protection, manufacturing and distribution. All these companies were impacted by the pandemic in one way or another, however they have remained resilient and managed to grow over the last 18 months, being supported by strong balance sheets and dedicated people, they are well placed to capitalise on the economic recovery and achieve the next stage of growth

At Newable Capital, we invest our own funds, taking a long-term view (typically at least 5-8 years) with no fixed requirement to sell the business. We encourage management and shareholders to invest alongside us, providing the opportunity to realise value from the companies they have created while benefiting from the future growth of the company. It allows for continuity in the business, while simultaneously allowing an ambitious management team to drive the next stage of growth.

Additionally, we do not believe in overburdening companies with debt, mandating strategy or replacing management teams. We back the management teams to run their businesses, while building partnerships and investing to support and grow the business. The quality of the relationships we have, drives the quality of our businesses and investments.

Find out how Newable Capital can help you.