This article was produced by (E) BrandConnect, a commercial division of The Economist Group.
The UK’s mid-market companies have historically not performed as well as their equivalents in Germany, where the sector is famously robust. But, says KPMG’s Chris Hearld, advances in technology, new ways in which companies are financed and a greater focus on regional strengths could change that over the next five to ten years.
With their roots in manufacturing, the UK’s mid-market companies have traditionally relied on the capital markets for funding. But today, companies of this size can also raise money from other sources, including venture capital, cross-border investments and corporate ventures—funds run by bigger entities that have an interest in supporting the research and development of smaller companies and helping them grow. What makes mid-market companies more attractive now is the rise of technology.
“Thanks to a new focus on technology, companies of this sort are now much more knowledge-based and less asset-heavy than they have been in the past and can be more agile than before,” says Chris Hearld, head of regions for KPMG in the UK. “They can raise money more easily, and grow and exit more quickly than has been the case in the past.”
That agility will be fundamental to company success, says Martin Sorrell, who for 32 years was CEO of WPP, the world’s largest advertising group, and now runs S4 Capital, a digital marketing agency established in 2018 with pro-forma revenues he says of about US$400m per year.
“The average life of a company on the FTSE 100 or S&P 500 is 17 years. The volatility is huge and the legacy companies are having to move faster and faster. So agility will be key.” – Martin Sorrell, executive chairman of S4 Capital.
Finance and retail are well-attested examples of businesses that have been revolutionised by technology, and sectors such as advertising and healthcare are now going through similar transformations. But, says Mr Hearld, these will soon be joined by many others. “Every company that wants to be successful is going to be a technology company,” he says. The question is whether building on a digital platform will be the key to creating a UK mid-market as successful as Germany’s.