Creating value from disruption: investing in 2021

The UK economy is emerging from the perfect storm of Brexit and a global pandemic. It has been tough, but many privately owned lower and mid-market businesses have been busily adapting and innovating through the last 12 months and are set to be the engine of the UK recovery. Industries will be remade following the disruption and private equity can play a pivotal role nurturing the survivors; helping them adapt to a post Brexit world and accelerate growth in the UK economy. In this article I will share a fresh approach to identifying the right areas to invest for future demand and the role of private equity can play in helping the UK get back on its feet.

The question for all private equity teams right now is how does our current and future portfolio create value by adapting to these changing circumstances? Private equity teams will need to revisit their investment strategy in the context of the societal changes resulting from the pandemic and Brexit. Armstrong has identified five themes which cut across sectors and trends and will play a critical role in driving recovery and growth for the next year and beyond. These can be used as a lens for value creation and origination in an unpredictable market.

Private equity has an opportunity to lead the responsible investment agenda by providing small and mid-sized privately owned businesses the capital and expertise they need to thrive, stimulate the UK recovery, and improve health outcomes.

Improving health outcomes

Health services across the globe have been stretched to breaking point. Some areas have fared better than others; all have been forced to lean on technologies and working practices that have previously been resisted by organisational inertia. Health organisations have had to embrace the digital age and there are multiple parts of the value chain that would benefit from the support and insight private equity has to offer.

Watch list in 2021/22

  • Pharma services e.g., CMOs, CDMOs, CROS, and Medical Affairs/MedComms

  • Social care, especially where supported by tech workflow and wearables

  • Connected health, telemedicine and AI augmentation Life sciences. e.g. testing

  • Improving efficiency and efficacy of NHS services

Levelling up life chances In the latest figures from the Office for National Statistics (ONS), 1.74 million people are unemployed in the UK and that is projected to grow to 2.2 million people by the end of the year as the furlough scheme unwinds. To remain competitive, the UK must reskill and upskill the workforce as it continues to lag its peers in productivity. There is also growing concern over a two-tier economy of those with access to financial services and credit and those without. Central and local government cannot address this alone and will be looking to the private sector for help. Watch list in 2021/22

  • Employability and training

  • ‘On the job’ training – recruit / train / deploy

  • E-learning

  • Access to financial services and advice

Urban environment

Retail, offices, leisure, transport, hospitality have all been hit by the pandemic. Whilst these sectors will bounce back as restrictions loosen, changes in consumer preferences are making us rethink our built environment. Trends in real estate have accelerated exponentially driven by how we have adapted to the pandemic. People expect to spend less time in the office, they require a seamless in-store / online retail experience and some have relocated to the country. Buildings will need to be repurposed and central business districts regenerated in a sustainable, energy efficient way. Now is the time to build back better. Watch list in 2021/ 22

  • Infrastructure, cities and buildings

  • Fibre roll-out

  • Flexible offices

  • Repurposing buildings

  • Regeneration programmes

  • Energy efficiency

  • Sustainability

Delivering public services There has been enormous fiscal expansion and public finances will have to be repaired. Society needs to do more with less. Alongside the step change in the adoption of technology; government has realised that buying services from SMEs can deliver value, faster and with better outcomes. The process of modernising legacy enterprise and migrating to the cloud is just the start. The next phase will be leveraging these investments to deliver better/faster/cheaper public services, leveraging data analytics, AI/ML, automation, and entirely re-imagined processes and service delivery models. Watch list in 2021 / 22

  • Service re-design

  • Predictive analytics

  • Process digitisation and automation

  • Tech-led outsourcing

International movement of goods and people

The UK is learning to adapt to significant trading friction with our largest export market, which is unlikely to ease as regulatory frameworks diverge. The prospect of trade liberalisation in new geographies presents new opportunities but with inherent risks. Importers and exporters will need help to navigate this increasingly complicated supply chain and customs requirements, whilst redesigning supply chains for resilience after COVID. Niche high value exporters are taking advantage of new markets to mitigate the risks of Brexit. Air travel has collapsed and will require a reboot in an uncertain global market. At the same time our reliance on cheap labour from Europe has delayed investment and some sectors will require significant re-staffing to continue. Watch list in 2021 / 22

  • Customs

  • Logistics / supply chain management

  • Re-staffing / re-skilling

  • Automation of low-skilled jobs

  • Niche manufacturing

Next steps

A thematic approach to origination will help your team think more creatively about target investments and help you to identify those with the greatest potential. Ask your team:

  • What themes fit your investment strategy?

  • How do they map against your current portfolio and targets for the next 12 months?

  • Are there any gaps / anomalies?

Our Armstrong team is ready to help you understand the trends that will shape the success of your current portfolio and whether targets are well placed to take advantage of them in the future.

©2019 Armstrong Transaction Services Limited