Funding Hindering the Growth of Northern Businesses, could M&A provide the answer?

Last week, a roundtable was held in Manchester at Sci-tech Daresbury, home to over 100 tech companies, to discuss how the North can innovate to achieve growth.

In a unanimous decision, the hi-tech companies in attendance agreed that funding is the main stumbling block to growth in the region. The group also highlighted access to talent and the need for better connectivity (transport links) as barriers to sparking more innovation.

The Government’s Northern Powerhouse initiative aims to address these problems. Policy Exchange head of education Jonathan Simons has pledged to create millions more apprenticeships: “The case for training and for skills has never been more important – to help create 3m apprenticeships, to fuel the Northern Powerhouse, to boost social mobility and to drive economic growth.” Furthermore, George Osbourne has announced that the government will be “investing £13bn in rail in the north” for “more trains, newer trains and more regular journeys” as part of the initiative.

In the summer budget, Mr Osbourne also announced that the issue of SME funding for growth would also be addressed by a new £400m wave of European funding. However, a recent report by KPMG and IPPR North explains that in order for the untapped potential in sprawling metropolises such as Manchester and Leeds to be realised, the government will need to shell out at least £50bn to turn the north of England into an economic powerhouse.

This means that there is a gap in the resources needed to fuel the innovation and growth of Northern businesses to reach their full potential. Could the funding to drive innovation come from M&A activity?

Ernst & Young has recently reported that the boom in 2015 M&A activity across the UK has been driven by a need to raise cash to finance the short-to medium-term growth objectives of companies, predicting that inbound M&A activity will only witness increased traction as businesses set their eyes on driving long-term growth. This activity will be encouraged by a positive economic outlook for the country, robust PE activity, optimistic investor sentiment and continued focus on initiatives by the Government, including the Northern Powerhouse agenda.

This suggests that the future gap in business funding in the North predicted by KPMG and felt by businesses in attendance of the roundtable, could be partially plugged by the predicted influx of M&A activity over the next 12-18 months. This, in turn, would enable businesses to innovate and grow, thus contributing back into the economic success of the UK and its Northern Powerhouse initiative.

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