Date: Thu 31st March, 2011
Venue: The Europa Hotel, Great Victoria Street, Belfast, BT2 7AP
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Chair: Michael Taylor, editorial director - Insider
Panel one:
Colin Walsh, non executive chairman - Andor Technology and managing director of Crescent Capital
Colin Reid, chief executive - Consilium Technologies
David Surplus, managing director - B9 Shipping
Ronnie Wilson, chief execuive - Monaghan Mushrooms
Panel two:
Mark Owen, director - NBGI Private Equity
Jonathan Coker, investment director - MMC Ventures
Eleanor Blagbrough, investment manager - ECI Partners
Kevin Kingston, general manager- corporate & markets, Northern Bank
Paul Betts, investment manager - EV Group
Insider brought together Northern Ireland businesses with private equity funding from England in the inaugural Insider Business of Finance Conference, held at the Euopra Hotel in Belfast.
In a passionate and informative keynote speech Colin Walsh of Crescent Capital and Andor pulled no punches in highlighting the equity gap in Northern Ireland.
"If there is anybody here from Invest NI who is beginning to feel a bit uncomfortable, you might want to think about leaving the room now," he said.
Walsh's speech, entitled 'Deal or no deal', was delivered to an audience of 120 professionals, advisers and funders of the Northern Ireland business community and looked at the different types of funding available and at the opportunities available for Northern Irish businesses to raise finance.
Talking about Crescent Capital and venture capital funding he said: "Some people seem to believe that the capital we are investing comes from the sky or is all government money.
"Others think that it is all about the needs of companies here looking for funding and that investment returns don't particularly matter. Actually, while we have some government funding, nearly 70 per cent of our funding comes from institutional investors from here and overseas, from Europe or the US, mostly pension funds and private investors. All of them are looking for the return of their money and a capital gain as well."
In a series of charts, utilising figures from the European Venture Capital Association, Walsh quickly and starkly showed the lack of money being invested into Northern Ireland compared to the rest of Europe.
"€18bn was raised and €39bn invested in deals across Europe during 2010. You can see that the venture industry works like a big shock absorber in the economy, harvesting surplus funds when the economy is on a roll and putting extra money out when the economy has had a knock-back.
"Further to this, the €18bn raised during 2010 breaks out into seed funds, later stage venture funds, buyout funds etc. Basically, around €500m was raised for seed and early stage plus about €1.2bn for later stage investing across Europe.
"I am sorry to have to report that against that backdrop, new funds raised in Northern Ireland during 2010 was approximately zero!"
Walsh then drilled down into more detail to compare the funding available in Ireland to Northern Ireland. Again, the difference was alarming: "There is no money at all at the moment for new deals other than at seed stage."
Having highlighted the lack of funding Walsh then went on to explain how and why this will have a long-term effect on the local economy.
"It is hampering the development of the private sector in Northern Ireland. Pension funds and other institutional investors who are willing to invest here have no vehicles at all to invest in.
"Venture-backed companies create more jobs, and create more wealth than almost any other sector in the economy."
Walsh then moved on to discuss the benefits of listing on the LSE and, in particular, AIM.
"I assisted with the flotation of Andor on AIM and have never really understood why more Northern Irish companies don't join AIM.
"In the last quarter of 2010 alone, 20 new companies were admitted to AIM, they raised over £500m while the rest of the companies already on Aim raised a further £2.5bn in follow-on funding between them," he explained.
However, when the rest of the panel joined Walsh for the first panel debate, there was some disagreement over the benefits of raising capital through AIM.
Colin Reid from Consilium argued: "I see a lot of companies sitting on AIM languishing. I think it can work if you have the right attributes, you have to have a huge growth story and this has to be growth through acquisition.
"Unless it is as clear cut as that I'm not sure that you see the benefits. And if you're a listed company you've get the pressure of quarterly revenues and quarterly profits in a consistent manner. If you miss one of those you're probably sent back 18 months to two years. This is particularly in the case of the technology sector which I think is more volatile."
Walsh countered: "I've got experience of AIM and it is the most regulated market that you are likely to find. You only have to report half yearly, it's not only about growth, Andor have had hardly any acquisitions, it is mainly an organic growth story. It is a market for emerging companies so you are allowed some fluctuation in performance.
"You will be punished if you don't deliver your own projections. If you think your going to fail you probably shouldn't go there, but if you think you are going to succeed it is the right place."
Comparisons were then drawn between the number of listed companies in Scotland which stands at around 60, and host Michael Taylor asked Walsh how many Northern Ireland companies that he thought should be listed: "Wales has a couple of dozen, southern Ireland has their own stock exchange and has at least 30 listed companies, so I would have thought we could warrant a couple of dozen here. It's a bit of a chicken and egg thing, because we don't have that many role models it has almost dwindled away, it has become kind of unfashionable. I think ten companies is an attainable target, and I have no doubt that there are ten companies here that would be suitable."
Taylor then went on to question the panel about the benefits of the recent Budget such as the changes in venture capital relief and entrepreneurs relief to find out whether they thought these measures would have an affect on Northern Ireland.
David Surplus of B9 Shipping answered: "We welcome these changes. If our model is to sell companies then the entrepreneurs relief is something that is going to make that sale more lucrative.
Panellists were then asked to discuss what the opportunities are for investors looking at Northern Ireland.
Reid said: "I think we need much more of an environment of venture backed companies here. I think the focus here for now should be on venture capital and on creating more high-net worth individuals. There's not enough businesses that have gone through and exited for the right sort of money to become serious investors, but I think these things will follow."
Surplus added his own personal experience of venture capital to the discussion, saying: "We've been in renewable energy for about 20 years, but it was only about three to four years ago that our phone started to ring with venture capitalists and private equity firms starting to ask us questions to try to find out if there were any opportunities to invest and work with us."
Taylor then moved the discussion on to talk about the universities, and asked how supportive the local institutions were in working together with businesses.
Ronnie Wilson of Monaghan Mushrooms praised the universities, saying: "They do very good work and provide our company with opportunities. But the speed that they operate at is totally different to that of the commercial world, and that's a problem.
"So now we tend to get seed work done by universities, and as soon as we believe in the concept and know we can make it work we take the research in-house."
After hearing all about some successful Northern Irish businesses, the second round of panellists, the funders, were called up to the stage and those from the private equity houses gave pitches on the funding that they have available to invest.
Taylor opened the funding discussion by asking Kevin Kingston of Northern bank about how his bank works together with private equity investors.
He began by giving a perspective on the Northern Irish banking market outlining that although there are four main banking players in the region, Northern Bank holds around 90 per cent of the business market here.
He went on to echo Walsh's earlier comments about the lack of venture capital funding in the region and admitted that to an extent historically the banks had perhaps squeezed out some private equity funding.
He explained: "We are now in a position where we are back to sound banking principles of sustainability and cash-flow and that has pushed us much more into a position of partnership of appreciating the role of venture capitalists and what they bring to transactions.
"The market has changed, but it is now a market where the banks are very conscious of working alongside venture capitalists rather than trying to compete with them."
Taylor questioned the private equity funders about how the leveraged model of funding has flipped and the debt element of their deals has become lower.
Eleanor Blagbrough of ECI Partners responded: "The fundamental business model for us hasn't changed. It all comes back to growth, the returns and the management team. We have never really based our dealings on debts."
Mark Owen of NBGI Private Equity commented: "The market has changed quite significantly, going back three to four years a large part of the model was on leverage and many transactions were leveraged quite highly. Sensible leverage will still be there, but the emphasis now is on picking growth businesses and management teams that can drive those businesses."
The panel was then asked about how Northern Ireland could learn from other regions that have embraced private equity, and about what messages they would give to businesses who are unsure about working with venture capital funders.
Paul Betts of EV Group commented on how the market in Northern Ireland is still young and said: "It all comes down to building relationships with management teams, understanding goals and objectives and aligning those with their own. If there isn't an open and honest relationship from the start it will be a difficult journey."
Blagbrough echoed these comments saying: "Businesses have to take time to get to know people like us and form an opinion about whether they want to work with us, ultimately if you take our investment we will be bound together for five years at least so it is important to have trust."
Jonathan Coker of MMC Ventures added: "It's also important to ascertain that there is actually a good reason for the funding. As long as you have a clear use for the funds and you share these plans with the venture capitalist team you are working with then that is a good start.
"However, you do have to appreciate the additional risk of taking on these types of funds. If you under perform you are likely to have relationship issues with your shareholders. There is no getting away from that."
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