Venture Capital to underpin North West deals market

Venture Capital is to underpin the North West deals market in 2023, according to Pannone Corporate.

The law firm said it follows a “record” year of fundraising, as uncertainty and high interest rates in the debt market continue to dampen the volume of leveraged buyouts. 

After Venture Capital Trust (VCT) fundraising reached a record high of £1.13bn in the 2021/22 tax year, VCTs are expected to continue to deploy capital in 2023, which includes investment in small and innovative North West companies. This is aided by the Government’s decision to extend the tax relief scheme beyond its original 2025 sunset clause, which will help maintain the positive momentum achieved during the past few years.

In the final quarter of 2022, a number of standout deals demonstrated the appetite of VCTs to invest in the regional North West market. This included Manchester-based Summize – a contract lifecycle management disruptor – which secured £5m Series A VCT funding from YFM Equity Partners and Maven Capital. The investment duo also led a £6.5m Series A round into biomedical data specialist, Biorelate.

According to Pannone Corporate, which acted on both deals, VCT fundraising could reach new record levels in the tax year 2022/23. It said this is particularly given the sector’s ability to offset subscriptions against income tax – an ability to pay tax free dividends, at a time when Government fiscal policy tightens, especially in relation to income tax thresholds.

Mark Winthorpe, corporate partner at Pannone Corporate, said: “As the deals in 2022 demonstrate, venture capital investment is becoming an ever increasing element of the investment landscape, following a record year of fundraising. 

“In many cases, VCTs are looking at a longer time horizon of five to seven years and investment rounds are increasingly done on a syndicated basis to increase the level of investment in the round and diversify a VCT’s portfolio. As such, this patient approach is making funds less susceptible to shorter-term economic and political impacts, with deal volumes also potentially benefiting from any softening of valuations.”

In 2022, Pannone acted on 12 VCT-backed deals, a 50 per cent increase on the previous year. Overall, deal volume increased by 24 per cent, with cross-border transactions continuing to feature strongly. 

Other publishable high-profile deals in Q4 2022 included, acting for the management team of training and apprenticeships provider Babington on its tertiary buyout, backed by Unigestion; advising digitisation and data storage business, Storetec, on its MBO, backed by Bridges Fund Management; acting for Maven Capital on its investment through the Northern Powerhouse Investment Fund into British tech-for-good company GWD; advising the shareholders of Inprova Procurement on its MBO backed by NVM Private Equity; as well as acting on the cross-border acquisition of Easyairconditioning.com, advising Beijer Ref AB – a Swedish listed business, which specialises in the wholesale of cooling technology and HVAC.

Looking ahead, Tim Hamilton, corporate partner at Pannone Corporate, said: “While uncertainty in the UK economy is putting off some overseas buyers, who have choices about where to invest their funds, there are still those who see a weak pound as an opportunity to acquire businesses in a well regulated market and a mature economy at good value. As such, we expect cross-border deals to remain resilient in the next 12 months.

“In terms of sectors to watch in 2023, big data and data security remain attractive areas for investment, as evidenced by the Biorelate and Storetec deals in Q4. Data security is an area that firms will need to maintain investment in over the course of the next 12 months, given the wider geopolitical landscape, whether that’s in Ukraine, or the growing tension between China and the United States over Taiwan.”