According to the Bank of England, the uncertainty around the UK’s planned departure from the European Union has led to a slowdown in the amount of foreign investment in UK companies. However, despite this, recent figures released by the UK Office for National Statistics (ONS) have revealed that foreign investment into the UK’s high- growth companies is on the rise, reaching new heights and record breaking figures. In 2017, £6 billion was invested over the 12 month period, with 396 deals involving at least one foreign investor. 2017 saw a rise of £3.8 billion in contrast to 2016, emphasising a significant growth in the foreign investment sector over a short period of time.
At present, there is a clear rising trend in foreign investment into the UK, relating to both the number and value of deals that involved a foreign investor. According to Beauhurst, 31% of all deals in the first quarter of 2018 involved fundraisings with foreign involvement. This may be corresponded with the acute rise in equity investments in the UK.
So where are these investments coming from? We are seeing a lot of activity coming from the West Coast of USA – both into the UK and the wider EU. In 2017, West Coast investors for example were involved in 74 deals worth £1.08 billion in value. This is something that we have also had direct involvement with, having advised long term West Coast based medical device distributor, Clinical Innovations LLC on their recent cross-border acquisitions in both Germany and Australia.
The higher end of the market proves to be the main target area, with 71% of deals made by the involvement of foreign investors valued at a minimum of £50 million. Additionally, since 2011, foreign investors have increased the value in the number of stakes taken in companies. This is because late- stage companies often require levels of cash unavailable domestically, and are low risk investments.
With the likes of large economies such as the US and China, it is no surprise that foreign investment is on the rise. Foreign investors participated in 23 UK ‘megadeals’ worth £3.7 billion throughout 2017. Despite the UK having a much smaller fund than those of the US and China, it is not all doom and gloom. This year, there has been a significant increase in the demand for UK based companies. Requiring large amounts of capital, some of 2017’s most notable megadeals proved beneficial for Britain’s club of challenger banks. For example, UK based company Monzo raised a £71 million round, including investments from Thrive Capital in New York, and Goodwater Capital in California. Another example is Atom, raising an extortionate £113 million, from a consortium including Spain’s BBVA.
Overseas funding for UK start- ups and scale- ups are backed largely by firms from North America and Europe. Specifically, Silicon Valley in America has the world’s most established VC ecosystem. The UK’s proximity to Europe is a natural reason for the latter. Common financial regulations within the EU also means that there are less barriers to investment. Therefore, there is a lower risk involved if firms want to invest in early- stage start- ups. Again, Brexit could detriment this. Nevertheless, America are the main investors within UK companies, with Asian investors being far less active and involved with the UK. However, this is not the case for seed- stage companies. It Is estimated that Asia are more likely to back these types of companies than America, with Kima Ventures and Global Founders Capital being the most active foreign investors, each making 23 investments into British companies.
As we know, British challenger banks have benefitted greatly from foreign investors. Crypto- currencies and block- chain are other verticals where the vast majority of deals included a foreign investor. By nature, these are technologies with no borders. This means that investments are more likely to come from specialised niche investors, funding companies regardless of where they are situated around the globe. We recently advised German bitcoin exchange company Vaultoro on its seven figure Series A investment from German listed fintech investor Finlab AG.
Unsurprisingly, London has benefitted the most from foreign investment, raising almost £2.5 billion across 152 deals. However, the East of England also took a substantially large proportion of foreign investment deals. This proposes that Cambridge’s tech start- ups are becoming progressively visible globally. One example is Darktrace, who have developed cybersecurity artificial intelligence which monitors a company’s digital infrastructure for potential weaknesses and attacks. In July of 2017, the company raised $70 million from a consortium of American investors, such as KKR, Insight Venture Partners and TenEleven Ventures. This round gave them a valuation of $700 million, and have since then, supposedly achieved a $1 billion valuation, making them one of the UK’s latest unicorns.
As we have seen, the UK have been involved in more foreign investments now than ever before. Not only have they been involved in a substantial number of investments, but the value in which these investments are made have been mega. This can only be good news for the UK, especially as overseas investors are now more attracted to UK companies and are more willing to invest stakes into them. Despite this, it cannot be ignored that the UK leaving the European Union could undoubtedly be detrimental to the number of foreign investments made to the UK. Although this is not concrete, it may be attractive for the UK to maintain venturing further overseas to countries such as America and China, to benefit fully from their significantly large economies.
Matthew SUTTON, corporate director of Greenaway Scott has over a decade of experience in corporate finance, including specialist experience in cross-border transactions.
As well as advising throughout the UK, Matthew has overseen transactions in the Netherlands, Germany, France, Italy, Australia and the US in the past 12 months.
Matthew is cited as a Recommended Lawyer in the Legal 500 (2017) and is lauded as being “incredibly talented, approachable and professional” by the same publication.
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