North West equity activity boosted by Greater Manchester innovation-led cluster

The British Business Bank’s third annual Nations and Regions Tracker, published today (October 12), finds that the North West experienced a drop in equity deal quantity and investment value in 2022.

This is in line with findings across the UK, however there are signs of recovery as the pace of decline in deal activity was starting to ease in the first half of 2023.

Academic spin-outs were identified as making a large contribution to equity activity throughout the UK, with Greater Manchester emerging as one of the leading innovation-led clusters outside of the Golden Triangle.

The Nations and Regions Tracker identified 33 innovation-led clusters covering 196 local authority districts, with each cluster marking a key driver of growth and technological progress for the UK. Across the North West, 45% of firms are innovation active according to the latest UK Innovation Survey (2021), up nine percentage points on 2019.

Of the North West’s 162 equity deals worth £0.69bn in 2022, 13 deals worth £95m involved spin-outs.

Greater Manchester leads the charge in the region, and was identified as the second most active innovation-led cluster outside of the Golden Triangle.

The report looked at equity activity since 2011, and identified 342 Technology/IP-related deals worth £1.1bn that had been generated in Greater Manchester up to the first half of 2023.

In terms of deal quantity, medical technology dominates the Greater Manchester’s spin-out ecosystem, while life sciences takes the lead when it comes to deal value. The region is also home to a further three innovation-led clusters located in Liverpool and Chester, Lancashire and Cheshire East.

The Nations and regions Tracker 2023 also found that in 2022, the North West recorded a decline in the share of small businesses utilising external finance, which fell to 36% compared with 46% the year before.

The largest decline in 2022 can be seen in the use of grants, which was down eight percentage points from the year before, and bank loans, down five percentage points. These trends were identified in the majority of regions across the UK, with the country as a whole recording a decline of seven percentage points in small businesses accessing external finance between 2021 and 2022.

Equity deals were also down in 2022, worth £0.69bn, corresponding to a drop of 22% from the previous year.

Despite this, there were early signs in 2023 indicating that the decline in equity finance deals is beginning to ease, with asset finance remaining well spread across the UK nations and regions, based on British Business Bank programme data.

When compared with the UK average, smaller businesses in coastal towns say they are less likely to be happy using external finance to grow (26%) compared with their counterparts based elsewhere in the UK (31%).

This is linked to a number of challenges that can make it harder for local businesses to develop ambitious growth and investment plans, including low productivity, greater ‘distance from market’ due to limited transport links, skills gaps and shortages, and lower business growth.

The pandemic further exacerbated some of these challenges, having a disproportionate effect on towns that rely heavily on tourism and hospitality.

In the North West, this is evident in Barrow-in-Furness, a post-industrial port town on the coast of Cumbria and the largest urban area in the county. Unlike many other coastal towns in the UK, Barrow has productivity levels comparable with the UK average across UK towns and cities but, despite this, the lack of diversification of the local economy remains an issue.

The town has a relatively static smaller business finance environment, with no equity investment between 2011 and the second quarter of 2023. The value of lending to local smaller businesses reached £30.8m on average in 2022, 20 percentage points lower than the year before the pandemic.

Barrow is, however, taking steps to diversify its local economy and better retain highly skilled young professionals, for example by creating a Barrow Learning Quarter that will house a university campus and a technical skills hub, improving the local walking and cycling infrastructure and transforming a stretch of dockside into, the Marina Village, a high quality residential housing community.

It is essential that smaller businesses in towns like Barrow can access external finance where this can support their journey towards higher business growth and investment.

Dr Sophie Dale Black, director, North of England, UK Network at the British Business Bank, said: “While on initial glance it appears that the North West is seeing a decline in the number of small businesses utilising external finance, we are seeing promising signs of recovery in early 2023. Unsurprisingly, our world class universities continue to play a crucial role in this, supporting emerging innovation-led clusters across the UK.”

As 41% of businesses in the North West anticipate needing external finance in the next 12 months, the bank said it remains committed to driving sustainable growth and backing innovation across the UK by ensuring smaller businesses have access to capital.

When deployed, the £660m Northern Powerhouse Investment Fund II (NPIF II) will further strengthen the bank’s ability to support smaller businesses in less developed ecosystems across the North access the finance they need to grow, working in synergy with other UK-wide bank programmes.