We start the year with optimism for the UK’s economic recovery. Despite the rapid spread of the Omicron variant, economic forecasters suggest that we should expect moderate growth in 2022. The CBI has slightly revised its growth prediction from 6.9% to 5.1%, citing supply chain disruption, energy prices and inflation among the factors that could drag on the economy.
Our Rcapital portfolio of twelve companies across ten industries, offers a unique insight into how the wider economic trends are impacting businesses – and despite a lot of doom and gloom in the media, we continue to have some great stories to celebrate.
The pandemic triggered global disruption of supply chains and businesses were forced to find different ways to move materials and products. Our portfolio companies worked hard with suppliers to manage these pressures and others found alternative sources of product closer to home. Capital Cooling Refrigeration Limited invested in two lorries to reduce their reliance on third party logistic suppliers and took back control of their UK logistics capability.
Leading transport and logistics learning specialists, System Group, warned of a driver shortage crisis of 100,000 people at its height during last summer. Last month the Government launched a skills Bootcamp initiative to help drive up interest in logistics sector careers. Education Secretary, Nadhim Zahawi, recently visited System Group who won a major contract in delivering the Bootcamp programme nationally, see video. The success of this win was thanks to the excellent relationships System Group has with their clients, meaning they are able to place newly trained drivers into businesses such as Eddie Stobart and Sainsbury’s.
The pandemic also caused millions of office workers to leave commercial buildings to work from home. These huge changes to flexible working and a stamp duty holiday (that ended in 2021), stimulated 1.5 million house purchases last year, a new record since before the financial crisis. Property consultants, Cluttons, were well positioned to take advantage of this market explosion whilst engineering consultants, Patrick Parsons are successfully working with clients to repurpose commercial buildings to better meet the changing needs of local areas.
Throughout the peak of the pandemic and lock down, facilities management providers, Richard Irvin FM and Trios, focused on supporting clients providing vital services into local communities such as defence, social housing, NHS, Police, Royal Mail and essential retail – all whilst concentrating on building stronger, more sustainable businesses.
Soaring energy costs in 2021 created volatility in the market and inevitable energy price rises were felt across the portfolio. However, we remain optimistic as Heat Exchange Group, supplier of the widest range of heat exchangers, won a series landmark, international capital projects in the latter half of 2021. Richard Irvin FM set out their roadmap to supporting the UK’s long-term plans for net zero by achieving Basecamp certification. Regional publisher, Archant, launched its first dedicated webinar debate, ‘Are We Ready For Net Zero?’ informing and educating local businesses of the need to reduce carbon to get in line with the government’s strategy of reaching carbon neutrality by 2050.
2022 Investment Outlook
We expect a robust economic recovery, however the withdrawal of pandemic emergency support, supply chain problems, energy prices and wage inflation will undoubtably increase the number of businesses looking for turnaround investment. We are also seeing situations where fund end dates, loan repayment milestones, build-up of crown and landlord debt are also triggering discussions on future investment requirements.
With an enlarged fund, ready to invest and experienced operators skilled in navigating headwinds, we believe that there will be many opportunities in 2022 and the reason to engage with us in early dialogue is compelling.
While we believe there will be opportunities for new investments, we also expect the market conditions to be favourable for successful company exits from the portfolio. As a result of all of this, we anticipate 2022 to be an incredibly busy year and we look forward to seeing and working with you over the coming weeks and months.