Why a billion-pound asset manager is investing in Yorkshire’s ‘buzzing’ cities

It was an ambitious aim, and – knowing what we now know about the economic ravages visited globally by the virus – it sounds as though it should have been comprehensively thwarted, consigned to the overflowing dustbin of pre-Covid plans.

Yet just 19 months later, Mercia Asset Management has £940m under its belt and is on track to hit that unlikely target by the new year. Where other companies in other sectors have been devastated by the events of the past year-and-a-half, Mercia – which focuses on regional businesses seeking venture, private equity or debt finance to scale their businesses – has thrived.

The company provides the investment nous for 14 regional funds, including two for the Northern Powerhouse Investment Fund, two for Finance Yorkshire, and a clutch of its own-brand vehicles, including three Northern Venture Capital Trusts (VCTs).

“When we first started moving Mercia forwards with this hybrid model of interconnected pools of capital, with a focus almost exclusively outside of London, that was Marmite: people either loved it or hated it,” Dr Payton told The Yorkshire Post.

“What’s happened now is, there are a lot less haters. It’s probably more like Nutella. I think people are coming with us, and therefore capital is coming with us.

“Success always attracts success. It’s the classic question: what’s the secret to a venture capitalist success? The answer, of course, is success. That’s the secret. As soon as you succeed, capital comes and businesses want to be part of you. Success is a very positive creation in its own right, and you’re starting to see that in the regions.”

The capital his company is injecting – and the infrastructure around it – is, he says, providing something that businesses in the capital have long enjoyed: a more efficient investment ecosystem of a kind which has historically been lacking in the North, foiling growth.

“Prior to the pandemic, you could walk down the street in London and you could meet advisers, support and capital. The networking effect in London was quite unique, and quite dysfunctional out in the regions.

“We think there’s a great need for an investment house that’s physically located in the regions. We did 76 new deals – in a pandemic. By having a physical presence here, we’re able to access opportunities that others just cannot see.”

Mercia, whose head office is in Warwickshire, has 11 offices around the UK, including two major hubs in Leeds and Sheffield, and virtual ones in Hull and Teesside. Around a third of its 100-plus staff work in Yorkshire and Humber.

The reason for the heavy presence in the region is that there’s simply a lot going on here. In the year to the end of March 2021, Mercia invested in 173 companies, 50 per cent of them in Yorkshire and the Humber.

“The region’s a big focus of our energy and attention,” says Dr Payton, who lives in Oxford. “Of the £94m we invested across the UK, £33m went into Yorkshire and the Humber. Against that £33m, we syndicated with an additional £51m. So just into Yorkshire and the Humber, that’s £84m that’s come into 86 businesses just over that period.

“Yorkshire and the Humber is disproportionately busy, and university spin-outs from Leeds and Sheffield also keep us busy. They’re buzzing.”

One type of company Dr Payton is particularly partial to is what he calls “purpose-led” businesses – those that look beyond simply making money.

One of Mercia’s investments is Faradion, a Sheffield business pioneering the development of sodium ion batteries to generate cleaner, cheaper energy – or as the company puts it, “providing lithium-ion performance at lead-acid prices”.

Another is Brighouse-based Logically, which uses artificial intelligence to verify information and weed out misinformation for clients including Facebook.

“That ‘purpose-led’ theme is coming out quite strong in the Yorkshire and Humber region,” says Dr Payton. “These companies are actually trying to make a difference here, and that’s quite rewarding as an investor.”

Feel-good investments may make everybody feel happy, but is there a wider aim here? By providing much-needed access to capital, is Mercia actually helping the North to punch its weight?

“There is definitely a growing philosophy that there is strength in the regions. But I think we’re way past the rhetoric of ‘levelling up’,” he says.

“I’m not a big fan of the ‘levelling up’ language – it feels a little bit like a finger being pointed at a disappointing child in a maths class or something.That’s not what we see in the regions at all.”

As for the future, Britain may be feeling a little battered by events, but Dr Payton is optimistic that good times lie ahead.

“If we treat Covid almost as a pseudo-recession, what we’ve experienced in the past is that the best investments come during that period,” he says.

“As society and the economy return to some form of normal, we expect quite a flurry of deal-flow in the autumn and winter, and we have a lot of cash to do that.

“If you’re a business based in Yorkshire and the Humber, there has never been a better time to either start up a business, or look for capital and support to move it forward.”

CURRICULUM VITAE

Dr Mark Payton gained his PhD jointly from the universities of Oxford and London.

He has an MBA from the University of Warwick and is a Sainsbury Management Fellow for Life Sciences.

From 2000, at Oxford University Innovation, he was responsible for several successful university spin-outs.

In 2005, he became fund principal for WM Enterprise’s Mercia Technology Seed Fund.

In 2010, he led an MBO, creating Mercia Fund Management.

In 2014, Mercia was listed on AIM, with Dr Payton as CEO.

In 2015, he was named 2015 EY Entrepreneur of the Year.

In 2019, the company changed its name to Mercia Asset Management PLC.

Mercia now has £940m in assets under management. Half its deals are in Yorkshire.