Baker Tilly: Potential investor advice to small & mid-cap

12 February 2015 Consultancy.uk

The UK business environment is on the up, however, while the numbers look positive, a survey by Baker Tilly of institutional investors’ perspective on 2015 discloses volatility, with investors not looking for surprises or broken promises. The investors list 6 tips for small and mid-cap businesses when it comes to finding investors.

The UK economy has shown signs of recovery after the 2008 credit shock, growing 2.6% over the last year and up from 1.7% in 2013. However, according to a recently released report from Baker Tilly and The Quoted Companies Alliance, investors remain jittery, warning that 2015 “could be a difficult year” and that a sense of honesty and realism needs to pervade business looking for investment from their funds in the current environment.

Chilton Taylor, Baker Tilly’s Head of Capital Markets, explains: “The current macroeconomic and political uncertainty will mean that 2015 will continue to be a difficult climate for many UK businesses. Getting investment over the coming year won’t be easy, but the good news is that investors are actively looking for companies that have a sustainable business model with reasonable growth rate. Businesses that focus on being realistic about their expectations and valuation and delivering what they promise will be the ones that get the support from investors in 2015.”

Baker Tilly - Small and Mid-Cap Investors Survey 2015

In the report, titled “Small and Mid-Cap Investors Survey 2015”, some of UK’s key small and mid-cap institutional fund managers were surveyed, to provide insights into how they view the market as well as providing tips to companies looking for investment in the current period. Particularly small and mid-cap quoted companies need to be realistic with their forecasts and manage their investors and other stakeholders’ expectations, according to the fund managers.

Baker Tilly discloses the key tips provided by the institutional investors, Consultancy.uk rewrites them in summary:

Don't overpromise - Don't overprice - Raise the right amount of money

1. Don’t overpromise and then fail to deliver – Being overly optimistic about the company’s value may well break the trust between the investors and the company if things turn out otherwise. By not over-promising and managing expectations through careful and well thought out announcements about the future timeline, disappointment can be mitigated.

2. Don’t overprice – Avoid pricing IPOs too high so that future investors can see where growth in value will stem from – the fund managers revealing that considering the quality of companies floated in 2014, some of the IPOs were set too high.

3. Raise the right amount of money – Be careful to raise the funds required to meet strategic plans, raising less and relying on accessing the rest when markets recover, is not, according to the investor sentiment, the way to go. Companies may find themselves without enough cash to meet their strategic goals.

Choose the right advisers - Give straight answers - Dont gloss over the problems

4. Choose the right advisers – Care must be taken when choosing investment advisors, with advisors to look for ones that “will listen and work for their benefit.” The fund managers surveyed pointed out bulge-bracket banks as advice to avoid on the basis that they fuelled the IPO boom of early 2014 for their own interest.

5. Give straight answers – Investors are looking for straight up answers to difficult questions, and will be put off making commitments without clarity on the state of business.

6. Don’t gloss over the problems – disclose the challenges faced by the company, investors understand that no business is perfect and being honest and direct is able to build up trust. 

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