UK attractiveness falls as Brexit fears begin to bite

BY Richard Summerfield

The UK remains the number one destination for foreign direct investment (FDI) in Europe, according to EY’s latest UK Attractiveness Survey. However, there was a notable decline in sentiment from foreign investors toward the UK as a place to invest in the future, which has allowed Germany and France in particular to gain ground.

The UK’s economy is in a state of transition, according to EY, with Brexit and ongoing technological changes impacting investments across sectors, as well as project types and sizes. In 2017, the UK attracted 6 percent more FDI projects compared with 2016, with the number of projects rising to 1205 from 1138. There was also a 6 percent boost in the number of FDI-related jobs created, to 50,196.

However, the UK’s traditional FDI targeted sectors, financial services and business services, recorded significant declines last years. Projects in the financial services space fell by 26 percent, despite the sector recording growth across Europe – the total number across the EU rose by 13 percent. The business services sector saw a decline of 10 percent as the European market recorded growth.  Last year also saw the UK fall to second place behind Germany in attracting business services projects, as UK projects from this sector fell and Germany’s increased.

EY also noted a “marked increase” in UK outbound investment in 2017, with the trend particularly evident in the financial and business services sectors. The total number of outbound investments was 464, up 35 percent on the previous year’s total of 343; 110 of those investments went to Germany, and 79 to France. Business services outbound projects rose from 117 to 125, up 7 percent.

“It’s quite a pick up,” said Mark Gregory, EY’s chief economist, referring to the outbound investment project figures. “If it hadn’t been for the surge of digital, then the overall numbers would look pretty ugly. Lots of these digital projects are quite small. Our core is flat or shrinking.”

For the first time since EY began reporting on investment attractiveness, London is no longer the most attractive city for FDI in Europe. That honour goes to Paris, thanks to the burgeoning impact of Brexit and the so-called ‘Macron effect’.

Report: UK Attractiveness Survey

US VC investment exceeds $84bn in 2017 following strong Q4, highlights new report

BY Fraser Tennant

Building off the “optimism and momentum” that has returned to the US and global markets in recent months, venture capital (VC) investment in the US rose to almost $24bn in Q4 2017, according to data published this week by KPMG.

In its ‘Venture Pulse Q4 2017: Global analysis of venture funding’ report, KPMG states that the level of VC invested in Q4 ($23.75bn) – up from $21.24bn in Q3 2017 – helped to make 2017 the strongest year of VC investment since the dotcom bubble.  

The strong VC investment in Q4 2017 was aided by the $1bn-plus funding rounds of three US-based companies: ride-hailing company Lyft ($1.5bn), cancer-screening biotech Grail Technology ($1.2b) and the automotive company Faraday Future ($1bn). 

“In 2018, we expect VC activity in the US to build off the optimism and momentum that has returned to the US and global markets,” said Brian Hughes, national co-lead partner, KPMG LLP’s Venture Capital Practice in the US “This should also be helped by stronger exit markets in both IPO’s and M&A activity for VC-backed companies.”

The report also notes that deal volume declined in Q4 2017 – down from 1997 in Q3 2017 to 1778 deals in Q4 2017 – as investors focused on placing bigger bets on a smaller number of companies that they believed had a stronger path to profitability.

In addition to the three $1bn-plus funding rounds, the US also saw numerous $100m-plus rounds, with the top 10 deals accounting for more than one quarter of the total investment during the quarter.

In terms of sectors and industries, VC and corporate investor interest in healthtech and biotech grew significantly in 2017, with a number of large deals completed in Q4 2017. Healthcare companies also topped the charts in terms of exits, which helped boost overall activity.

“While there is no indication that we will return to the level of IPO activity we saw in 2015, there is a likelihood that 2018 will see an increased number of IPOs,” said Conor Moore, national co-lead partner, KPMG Venture Capital practice in the US. “However, the secondary market is poised to see even greater growth as many companies choose to remain private for longer.”

As far as global VC investment is concerned, a strong Q4 2017 across the Americas, Asia and Europe helped propel the global VC market to a record level of annual investment for 2017 of $155bn.

Report: Venture Pulse Q4 2017’ – Global analysis of venture funding

Global FinTech funding totals $8.2bn in Q3 2017, reveals new report

BY Fraser Tennant

Investment in FinTech reached $8.2bn across 274 deals in Q3 2017, with venture capital (VC) funding strong and deals large, according to KPMG’s latest quarterly analysis of global trends.

In ‘Pulse of Fintech Q3 2017’, KPMG reveals that the US led global FinTech investment in Q3 2017, with $5bn deployed across 142 deals (VC funding increased to $3.3bn across 211 deals, up from $3.01bn in Q2). In Europe, FinTech deals accounted for $1.66bn of investment across 73 deals, while Asia saw $1.21bn invested across 41 deals (VC funding was particularly strong in Europe in Q3 at over $700m).

Additional Q3 2017 FinTech highlights include: (i) the median deal size for angel/seed stage deals at the end of Q3 2017 stood at $1.4m, up from $1m in 2016, while the median deal size for early stage rounds was also up to $5.5m from $5.1m in 2016; (ii) the median deal size of late stage deals was even year-over-year at $16m; (iii) while overall corporate VC funding has declined so far this year, the participation rate remains high (corporates have participated in 18 percent of all FinTech VC deals globally, year-to-date); and (iv) FinTech venture-backed exit activity skyrocketed in Q3 2017, almost tripling quarter-over-quarter from $270m to $940m. This reflects the second-best quarter on record for FinTech exits.

Furthermore, the top 10 global deals in Q3 2017 included six US companies. These were Intacct ($850m), CardConnect ($750m), Xactly ($564m), Merchants’ Choice Payments solutions ($470m), Access Point Financial ($350m) and Service Finance Company ($304m). The remaining four were Germany-based Concardis ($806m), UK-based Prodigy Finance ($240m), Canada-based TIO Networks ($238.9m) and China-based Dianrong ($220m).

“The level of corporate participation in FinTech VC investment deals in Europe can largely be attributed to a growing recognition by traditional financial institutions that digital transformation is critical,” said Anna Scally, a partner, head of technology and media and FinTech lead at KPMG. “Build or buy is always an important consideration. Many of these financial institutions have started to heavily invest in FinTech companies as a strategy to give them the direct access to the new technologies they need to compete."

Looking ahead, the KPMG report notes that the FinTech sector is expected to continue to evolve rapidly, with many companies, including both mature FinTechs and large e-commerce players, looking to diversify into adjacent services.

Report: Pulse of Fintech Q3 2017 - Global analysis of investment in fintech

Optimism returns: UK asset and wealth arena improves in Q1 2017

BY Fraser Tennant

Optimism returned to the UK asset and wealth arena in Q1 2017 following a period of intense pessimism throughout 2016, according to the latest CBI/PwC Financial Services Survey published this week.

The survey, a quarterly snapshot of the views of 98 UK firms, found that business volumes grew in the three months to March, although this growth is expected to slow over Q2. However, despite the expected slowdown, spreads and average fees and commissions are expected to rise, with profitability continuing to improve strongly.

Among the survey’s key findings were: (i) optimism in the financial services sector was broadly stable, following four consecutive quarters of declining sentiment (the longest period of falling sentiment since the global financial crisis of 2008); (ii) 33 percent of firms said they were more optimistic about the overall business situation compared with three months ago, while 29 percent were less optimistic; (iii) 34 percent of firms said that business volumes were up, while 17 percent said they were down; and (iv) looking ahead to Q2, growth in business volumes is expected to slow somewhat, with 23 percent of firms expecting volumes to rise next quarter, while 14 percent expect them to fall.

In terms of the overall business situation, optimism varied across sectors, with building societies, life insurers, insurance brokers and investment managers feeling more optimistic and finance houses and general insurers less so. In the banking sector sentiment was unchanged.

“The industry has picked itself up and feels in a stronger position than it did six months ago,” said Mark Pugh, UK asset and wealth management leader at PwC. “Nonetheless, the sector remains sensitive to uncertainty and potential market volatility.” Among the uncertainties are rising costs, technology spend and regulatory hurdles, with regulation and legislation also cited as constraints on business expansion for asset and wealth managers over the next 12 months.

Mr Pugh continued: “A slight reduction in the pace of technology spend could represent asset and wealth managers delaying large scale investment until they have more certainty on upcoming regulation such as MiFID II, PRIIPS and the FCA Market Study.”

Despite the potential delay in investment,  the ability to implement innovation quickly is driving consolidation in the sector – a trend which is expected to continue. “Anticipation of future consolidation seems to be a factor in the industry’s swing back towards optimism,” concluded Mr Pugh.

News: Optimism stabilises as financial services gets boost from solid economy – CBI/PwC

Investors see UK as important for growth despite Brexit concerns, claims new report

BY Fraser Tennant

The UK is an important country for growth, with Brexit and uncertainty surrounding the future relationship with the EU doing little to deter investors, according to a new PwC report published this week.

The report, ‘Inside the mind of the investor… What’s next?: Global survey of investor and CEO views’, based on interviews and data from over 550 global investment professionals and over 1300 chief executives, reveals that the UK moved up from fourth place in last year’s survey to equal third with Germany this year, behind only the US and China. 

Other key findings in the report include: (i) London being viewed as the second most important city for growth prospects over the next 12 months, behind New York and followed by Beijing, Shanghai and San Francisco; (ii) investors focused on the technology and financial industries, putting the UK among the top three countries for growth; and (iii) 45 percent of investors and analysts say they were very confident about global economic growth (compared to 22 percent in the 2016 report).

“It’s striking that the UK is now seen as more important for growth, particularly by investment professionals, moving up from fourth place last year to joint third place with Germany this year,” said Hilary Eastman, head of global investor engagement at PwC. “Importance could be interpreted in a positive light – that the countries selected would be those expected to grow most or fastest.”

“On that basis, the Brexit vote and all the uncertainty surrounding the UK’s future relationship with the EU appear not to be deterring investors. However, some investment professionals saw that ‘importance’ could also be interpreted in a negative sense – that problems and greater volatility in the UK, for example, could have an important effect on slowing down companies’ growth.”

The report also notes that investment professionals perceive geopolitical uncertainty to be the top threat to company growth prospects, with protectionism, the future of the eurozone and social instability also ranked highly. In addition, almost one in five of think technology will completely reshape competition within five years, while 85 percent expect automation to reduce company headcount.

Ms Eastman concluded: “Investment professionals around the world are upbeat about global economic growth prospects, despite recognising the shifting political landscape in which companies operate. But investors do think it is becoming harder for business leaders to balance competing in an open global marketplace with trends toward closed national policies.”

Report: ‘Inside the mind of the investor… What’s next?: Global survey of investor and CEO views’