£15.5bn invested in deals between manufacturing corporates and UK SMEs since 2013

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Deals between large manufacturing companies and UK SMEs are widespread with more than 770 since April 2013, known to have exceeded £15.5bn.

This makes manufacturing the country's second most collaborative sector, with 14% of deal volumes, after financial services (34%). The vast proportion (83%) of manufacturing deals were M&As.

Economic data, released today by national law firm Bond Dickinson, explores mergers and acquisitions, joint ventures and minority stake purchases in UK SMEs from both domestic and international corporates.

Across all sectors, between 2013/14 and 2016/17, large organisations are known to have invested over £102bn in 5,447 deals with UK SMEs. This exceeds the £62bn corporates invested in UK research and development between 2013 and 2016*, and represents more than a seventh of the £683bn total UK business investment.

Based on analysis of four tax years of deal data, the findings are detailed in Close Encounters: The power of collaborative innovation.

Peter Snaith, Head of Manufacturing at Bond Dickinson, comments: "Manufacturing companies are well-versed in how to work with SMEs. For example, major pharmaceutical companies have a long history of partnership with innovative contract research, manufacturing businesses and startups. Companies like Nissan and Dyson are also leading the way in creating innovation centres and placing collaboration at the heart of operations.

"The high percentage of M&A deals compared to minority stake purchases may reflect the tradition of top-down control cultures, as well as the standalone value of IP to the high-tech manufacturing which the UK specialises in."

The research shows that the total number of manufacturing deals dropped by 27% in 2016/17. Deal volumes hit a high in the 2014/15 tax year, totalling 238, but fell to 187 in 2015/16 and 137 in 2016/17.

Peter Snaith adds: "This sudden drop in collaborative deals suggests that uncertainty over the outcome of the Brexit negotiations may be stalling decisions with deals now being postponed or cancelled - a worrying trend for a sector at the forefront of the UK's international trade prospects."

About the research

Understanding the importance of collaborative innovation to corporate strategy, Bond Dickinson commissioned independent economics and business research consultancy the Centre for Economics and Business Research (Cebr) to conduct the economic research outlined in this press release and the accompanying report Close Encounters: The Power of Collaboration. This study was conducted in April 2017 using four years of comprehensive quantitative information sourced from Bureau Van Dijk's private company information database FAME and business deal database Zephyr.

The business collaborations quantified in this research relate to asymmetric deals which involve large businesses (of any nationality) and UK small and medium-sized enterprises (SMEs), in which the deal acquirer was the large business. Collaborations are defined as deals identified as mergers and acquisitions, corporate joint ventures which create a separate corporate entity, and minority stake purchases. This data excludes commercial joint ventures based purely on contractual arrangements.

Business size was defined by employee numbers in line with the BEIS Business Population Estimates (BPE), with less than 250 being classed as an SME, 250 employees or more being a large organisation.

To focus on collaborative deals between established businesses rather than traditional investment activity, deals which were financed through angel investment, development capital, crowdfunding, private equity or venture capital were excluded from the analysis.

Not all collaborative business deals identified in Bureau Van Dijk's Zephyr database have associated deal values. For a deal to have a recorded value, the companies involved must formally announce the deal to their shareholders and the information must be disclosed in the public domain. Missing deal values are therefore typically present for deals involving private companies, where completion information on deals is more difficult to ascertain.

Deal volume and value is collected in financial years running from April 1st to March 31st. Trends by industrial sector were captured using 2007 Standard Industrial Classification (SIC) codes.

* R&D comparison

The total values of business collaborations in each year have been put in context by comparison to the Business Enterprise Research and Development (BERD) expenditures sourced from the Office for National Statistics (ONS) as part of the annual ONS Business Innovation coverage.

As the definition of business collaborations used in this study covers deals featuring UK SMEs as the target, where the large business acquirer can be of any domicile, the comparison used BERD expenditure taking place in the UK and undertaken by large businesses, regardless of whether their ownership was foreign or domestic.

The ONS produce BERD statistics on a calendar year rather than financial year basis, while business collaborations have been captured on a financial year basis. Direct comparisons should be therefore treated as indicative. While the ONS had not yet released their statistical estimate for the total value of large business R&D expenditure in 2016 at the time of analysis, Cebr have provided a forecast based on the historically stable ratio between business R&D expenditures and wider business investment using full data for 2016, which is now available for the latter.

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