How to… get support from the Business Growth Fund

15 May 2013
How to… get support from the Business Growth Fund

The UK's largest long-term equity investment company could be the place to seek backing for your business roll-out

George Osborne's Budget may have been full of gloomy economic updates but it also included some patches of light for the leisure and hospitality sector.

On the demand side, while serious headwinds remain, the chancellor's decision to freeze the fuel escalator and further extend income tax personal allowances will boost consumers' spending power - and the tax cut on beer was a subtle nod from Osborne on how to use that boost that many in the sector will appreciate.

Moreover, the Treasury also offered supply-side reforms that will benefit employers in the industry as they seek to grow their businesses. The Employment Allowance, which comes into effect next April, will subsidise employers' national insurance contributions by up to £2,000 a year. The chancellor says up to 2.5 million employers will qualify for the new allowance, while 450,000 of the UK's smallest businesses will pay no employer national insurance contributions at all.

The measure is specifically aimed at boosting job creation. It effectively means a business will be able to hire one new member of staff on an annual salary of £22,500, or four employees on the minimum wage, without incurring any additional national insurance contributions.

For labour-intensive businesses in the leisure and hospitality sector, that's a welcome reform - particularly for those with ambitions to expand. It should encourage more companies to open new sites and hire new staff.

Nevertheless, a programme of openings - particularly if it is aggressive and ambitious - requires significant investment. And while the climate for openings may feel more benign, the problem of how to fund site roll-outs hasn't gone away.

It's a common dilemma for fast-growing leisure and hospitality businesses.

Though it may be possible to finance some additional openings from cash-flows at existing outlets, rolling out new sites in this way is likely to be a slow process. And that delay might mean missing out on prime sites or seeing competitors steal a march.

While bank debt might be a solution - assuming this form of finance is even available - it is likely to come with strict performance-related covenants. Businesses often encounter unexpected difficulties when developing new sites, and such covenants can leave them vulnerable as they try to cope with these short-term setbacks.

The Business Growth Fund (BGF) might be able to help. The long-term equity finance it provides is well suited to businesses with ambitious and realistic plans to grow rapidly. It can deliver the funding that will enable companies to realise those plans with a cushion of protection to see them through hiccups along the way.

The BGF will invest between £2m and £10m in businesses with an annual turnover of between £5m and £100m. It only takes minority stakes in companies. It sees itself as building, not buying, businesses - and doing so for the long term.

The leisure and hospitality businesses in which the BGF has already taken stakes are proving that, despite the difficult economic climate, it is possible to prosper and grow with the right business plan - and the support necessary to underpin that growth.

Opposite are five businesses from different parts of the hospitality sector with one thing in common: each company has ambitious plans for the future and a realistic road map for getting there. The BGF's money will help them fulfil their potential.

What the fund looks for in an investable business

â- Long-term growth potential

â- Turnover of £5m-£100m

â- A strong product or service with demonstrable market

â- A strong management team

â- A sound business plan

â- A scalable business model

â- A sense of investment requirement and how it will drive growth

â- Appetite to work with a partner investor

â- Confidence and ambition

Andy Gregory is regional director at the Business Growth Fund

The Business Growth Fund's hospitality investments

Investment kick-starts Barburrito roll-out
The BGF's investments in the hospitality sector began in March 2012 with a £3.25m stake in Barburrito, a Mexican restaurant chain with six outlets in the North of England.
The investment has kick-started a roll-out programme, with Barburrito planning to triple the number of restaurants it operates within four years. The business began that programme in March 2013 with the launch of its first London restaurant, in Paddington Station.
It expects to open a further three outlets over the next few months. Camino steps up site roll-out Camino is a chain of tapas bars in London run by an experienced management team that have previously built a diverse range of successful bar and restaurant businesses. The BGF put £3m into the business in December 2012 and Camino now plans to step up its site roll-out programme - and to double the number of people it employs.

Wear Inns revives the fortunes of failing pubs
At Wear Inns, an £8m investment by the BGF in May 2012, together with additional funds from an existing investor, has enabled the pub chain to add 11 new pubs to the 15-strong portfolio it had previously built up.
Wear's strategy is to buy up underperforming pubs with the aim of reversing their fortunes - it's an intelligent business plan, but one that may require significant investment. Peyton & Byrne on the rise with bakery and restaurant expansion At Peyton & Byrne, the family business of restaurateur Oliver Peyton, a £6.25m investment was made by the BGF in December 2012 to give the company the firepower that it needs to expand on several fronts.
The BGF also introduced Peyton & Byrne to Mike Johnson, the former chief executive of Whitbread's restaurant chain, and he is now helping the company roll out more of its bakeries and restaurants.

Ten new sites planned for Boost Juice
Boost Juice was launched in the UK by Richard O'Sullivan, whose track record in the sector includes the development of Millie's Cookies, which he built to 100 stores before selling up for £24m.
O'Sullivan launched 10 Boost bars before approaching the BGF for help with dramatically accelerating the roll-out of the chain. The fund's £2.5m investment in the company, made at the end of 2012, should enable the company to open 10 new sites in each of the next three years.

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