The move to a more sustainable economy is a global one. Our strategy is global, and our outlook is global. The technologies that deliver sustainability are global. A good business model in Europe is more often than not a good business model in Asia and America.
There are regional differences. Culture is important. What passes for corporate governance varies too. We can reflect on different approaches to capitalism and sustainability around the world. This month is a good month to apply that lens to Great Britain. Britain is, after all, the home of WHEB Asset Management, and of more than half our investor base.
The prompt for this introspection is the loss of another of our portfolio UK companies to an overseas bid. The board of BTG Plc agreed on 20 November to be bought by its much larger US rival Boston Scientific.
We were pleased with the profit. The bid price of 840p per share was a 36% gain on our volume-weighted average purchase price. We were sorry though to lose an interesting and impactful technology company.
BTG is a pioneer in “interventional medicine” – minimally invasive image-guided diagnosis and treatment of disease. It offers the attractive possibility of better clinical outcomes with lower costs.
BTG is also a bit symbolic. It stands for “British Technology Group”. It can trace its roots to the 1948 foundation of the National Research Development Corporation, to commercialise government funded research. It can proudly claim to have introduced the world to such diverse technologies as continuously variable transmission, magnetic resonance imaging (better known as MRI scanning), cephalosporin antibiotics and even the hovercraft. And now it is disappearing into a much larger multinational.
WHEB has been here before. In July 2016, shortly after the Brexit vote, we lost ARM Holdings to a bid from Softbank of Japan. ARM was already then at the cutting edge of semiconductor chip design. Under its new Japanese owner, Softbank, it has gone from strength to strength.
Then, as now, we made a tidy short-term profit as investors. But then, as now, we lost another of the compelling impact opportunities in the UK market.
In some ways, this shouldn’t be a problem. Industries are always changing and evolving. New companies are always emerging. And we do still have a stock of great British companies to invest in. In the portfolio this now includes testing and inspection company Intertek, and two advanced manufacturing specialists, Renishaw and Spectris.
But as we see it, the number of investable UK companies is not growing as quickly as we would hope. The UK still has one of the world’s great university networks. The pace of innovation remains healthy. Why isn’t this translated into more meaningful sustainable investment opportunities?
We can think of a couple of likely reasons. One is cultural. The UK doesn’t have a tradition of bringing mid-sized companies through for the long-term. In Japan, Korea and Europe, there are well-established models of closely-held firms growing with patient finance, often from banks.
The American way is more free-wheeling. But it is such a huge capital market that if you want to build something, you can find plenty of people to help. In the UK, our middle market companies more often work with private equity firms. Some of them are interested in patiently growing real value, but others aren’t.
Another problem is that sustainability is often a manufacturing game. If you want to improve the environment, you often need to produce physical devices that interact with the physical world. The UK has a legacy of neglecting its manufacturing base. There aren’t many financial, mining, business services or media companies that can credibly claim to be solving sustainability challenges.
Perhaps more hopefully, the last problem is Brexit. The words “hopeful” and “Brexit” are not easy bedfellows. But the reason for hope is that the uncertainty of Brexit will end at some point. UK entrepreneurs and investors will have some visibility again. And the opportunities from sustainability will come back to the fore. Whether the UK has the right corporate culture to embrace it is another question.