Great gains from small and medium businesses
ACCORDING to the Federation of Small Businesses, Wales’ 240,000 small and mediumsized businesses turned over more than £46bn in 2017. This is the equivalent of £126m a day.
Welsh Government figures, for example, show increases across production output, manufacturing output and construction output in the four quarters ending in the second quarter of 2017. During this period, production, manufacturing, and construction were up by 2.4%, 3.4% and 4% respectively.
This exceptionally successful year for Welsh businesses comes despite constantly fluctuating political factors including Brexit negotiations and the Budget, which could have had a damaging effect on business growth.
It has been suggested this success could be attributed to factors such as international expansion, additional funding and potential tax changes.
Matthew Sutton, corporate director at Cardiff-based business advisory firm Greenaway Scott, said there were a number of surprising factors which may have contributed to this success.
Mr Sutton said that “a number of lucrative transactions have taken place across the market in the past 12 months, with Greenaway Scott alone acting on over £100m worth of deals”.
He added: “With Brexit negotiations at a tentative stage, there was some concern that there could be a detrimental impact on the Welsh economy and its business transactions. However, business in Wales appears to be undeterred by this and is continuing to make great strides.”
Here are the top three factors which Mr Sutton believes influenced business transactions in 2017.
INTERNATIONAL EXPANSION
While international expansion could, in part, be attributed to Brexit, Mr Sutton said that many Welsh businesses have simply been “futureproofing” ahead of 2018.
He said: “The number of international transactions in Wales has increased significantly in 2017 compared to the previous year.
“At Greenaway Scott, we acted on a significant number of cross-border transactions in 2017, which we see as indicative of businesses looking to start future-proofing ahead of any changes brought on by a changing international business climate.
“This isn’t all down to Brexit; many firms are simply looking at expanding into the European market to increase business reach and drive further growth. International transactions have definitely stepped up.”
Over the past 12 months, Greenaway Scott has acted on the multi-million-pound investment by US Silicon Valley private equity firm Telegraph Hill into Cardiff-based technology company TrakCel; advised global BitCoin business Vaultoro through its seven-figure investment from Frankfurt-listed fintech company Finlab AG; supported Clinical Innovations on its acquisition of Brenner Medical GmbH in Germany; and advised Flexicare Medical on its acquisition of Dutch-based Medisize BV.
CAPITAL GAINS TAX CHANGES
A number of companies have been concerned about potential changes to the capital gains tax regime, which has previously favoured selling shareholders.
In particular there are fears over changes to Entrepreneur’s Relief (ER), which typically offers a reduced 10% rate of capital gains tax to exiting shareholders.
Mr Sutton said: “Many businesses fear that ER could be removed or reduced, which could significantly increase the tax take on a disposal.
“Whilst the regime was unaltered in the recent Budget, many businesses remain keen to take advantage of the current generous reliefs while they can.”
DEVELOPMENT BANK OF WALES
Last year saw the launch of the Development Bank of Wales, which is supporting Welsh business growth and expansion with over £440m in funding available.
Launched by the Welsh Government, the Development Bank allows funding to be provided to Welsh businesses for up to 10 years, with interest rates charged to businesses on debt ranging from 4% to 12% per annum.
Funds of between £1,000 and £5m are available to business start-ups, while equity investment from £50,000 to £5m is also provided by the bank.
Through the Development Bank, Welsh businesses can also now take advantage of a new £100m Flexible Investment Fund.
Mr Sutton, whose business sits on the Development Bank of Wales’ legal panel, said that this has had a remarkably positive impact on Welsh business growth.
He said: “We have definitely seen businesses become more active and explore growth and expansion options more readily thanks to the Development Bank of Wales.
“With significant funding of up to £100m available to support sustainable business development and growth, the Development Bank has been a much-needed boost for Welsh business.
“It will be extremely interesting in 2018 to look back on the number of businesses that have started since its launch.”