Member Article

North East shareholder activity reveals profitability

North East companies that have seen shareholder changes in the past 12 months are among the most profitable in the UK.

The Barclays Entrepreneurs Index investigated shareholder activity and profitability of private, growing companies in each of the regions.

It found the average profitability of companies that had seen a change in shareholding was £2.01m, making the region the second most profitable.

The average operating age of these organisations is 26 years, the second longest held across the country. Barclays research suggests this indicates the transactions were not “quick flips”, as business owners have invested much of their working lives into setting up and running them.

Andrew Miller, Regional Director of Barclays Wealth and Investment Management in Newcastle, said: “For good reason, entrepreneurs have been branded the ‘lifeblood of the economy’. They are catalysts of job creation and of economic growth.

“Ultimately, their efforts lead to wealth realization for individuals, communities and countries. This is why we have launched an index which monitors shareholder changes of growing businesses in order to provide a snapshot of the entrepreneurial landscape in the North East as well as throughout the UK & Ireland. A more buoyant environment should lead to greater investor confidence – the more likely the exit, the more likely the initial investment.”

Just over 190 growing companies in the North East saw a change in shareholding between the second half of 2011 and the first half of 2012, making the region the second lowest in terms of entrepreneurial activity, after Northern Ireland.

Andrew explained: “The decline in the number of shares being sold in growing companies probably indicates that it is harder for businesses to be sold, mainly due to the continued uncertainty in the global economy.

“Acquirers are less willing to take risks, and the business owners themselves are more likely to sit it out until conditions improve. Some have used this period to cut costs, focus on key clients and reduce inventory, therefore becoming healthier. For these more profitable and therefore ‘attractive’ companies, there are buyers. It is difficult to know whether this is a short or long term trend, but, based on this data, business owners need to contemplate managing their businesses and associated risks further into the future.”

The report reveals that industrial, retail and knowledge sectors in the North East yielded the most shareholder changes, accounting for 87% of share transfers in the first half of this year in the area.

Between the two six month periods analysed, the proportion of growing companies that experienced shareholder changes in the industrial sector increased from 48% to 60% in the North East. The proportion of companies from the retail and knowledge sectors declined from 28% to 23% and from 16% to 6% respectively.

Ross Smith, Director of Policy at the North East Chamber of Commerce, suggests the lower level of entrepreneurial activity is down to the region’s size: “Some of the best bits of the UK economy are represented in the North East and the region is home to some extremely resilient companies which are doing well even in the current tough climate. However the business community needs to grow further, and there is a space for more of these types of company within the region.”

Elsewhere in the report, the national picture showed London saw the biggest increase in proportion of growing companies which experience shareholder changes, particularly in the finance sectors which increased by 76%.

London and the South East remain home to most of the entrepreneurial activity, with around 2,000 companies seeing a shareholder change in the region.

This was posted in Bdaily's Members' News section by Tom Keighley .