Why start-ups are selling up, not scaling up
The number of mergers and acquisitions of young enterprises is at a record high according to data from the latest Barclays Entrepreneurs Index.
The Barclays Entrepreneurs Index has been tracking the entrepreneurial lifecycle since 2011. The latest data shows that the number of merger and acquisition (M&A) deals involving businesses of less than five years’ old has jumped 28% since 2016.
Meanwhile, the number of UK high-growth companies and companies receiving venture capital investment is at its lowest since 2011. The number of companies receiving expansion funding has also decreased; however, the overall value of this funding has gone up by 70%.
Some regions are seeing more growth than others. Venture capital investment has increased by 17% in Yorkshire and the Humber and by 9% in the North West.
Overall, however, the research shows that opportunities to scale up businesses are not being taken. The trend to sell up rather than scale up may be the result of an uncertain political and economic environment, which has made it difficult for businesses to plan ahead and grow. Under these conditions the report says, “it is perhaps more appealing for entrepreneurs to take an early exit from their business”.
The mixed funding picture hasn’t dampened the UK’s entrepreneurial spirit, however, with the number of new businesses being incorporated at its highest level since 2011. There were 646,000 new businesses created in 2016, 8% higher than the previous year.
Andy Houston, head of Barclays Wealth Management, said: “It’s encouraging to see an increase in the number of new companies being created. Furthermore, the strong uplift in the number of young companies being bought shows that UK start-ups are seen to have real value. However, while we are seeing moments of wealth creation through these M&A deals, it’s important that businesses are scaling up and not just selling up.”