CMR Surgical is likely to be sold to a US buyer
Over the past decade, a staggering 2,600 promising UK companies have been sold abroad. We should be furious
Britain is beginning an overdue gear change that until now it has only half-heartedly accepted. It is to recognise that the great companies of tomorrow, the key to delivering growth, are not going to emerge spontaneously as creatures of the marketplace, but from an ecosystem of publicly created support. And once they are built, we have to work much harder to keep them here.
That’s why a news item last week that didn’t attract much notice really should have. Cambridge-based CMR Surgical, a fast-growing British life sciences company that makes a mobile robot capable of guiding minimally invasive surgery, and which could have been the next AstraZeneca or GSK, announced plans to sell itself, almost certainly to an American buyer, for up to $4bn. Whoever ends up the owner will be able to cornerstone its transformation into a company with global reach and create a de facto monopoly. But it won’t be British.
From CMR’s perspective, this is a passport into the lucrative US market. But it is not alone. Last year a string of Cambridge-based life science companies – over $12bn worth – were sold to the US, including Abcam and Darktrace. The US market is a magnet and for some companies American ownership is a fair trade-off for market access – but surely not so many. As the British Business Bank chairman Stephen Welton warned 18 months ago, the UK is becoming in effect an incubator of great companies – for other countries. In particular, to help the US grow more $1tn behemoths and therefore its growth rate.
The Purposeful Company (full disclosure: I am co-chair) estimates that a staggering 2,600 promising young UK firms have been acquired abroad in the past decade. While some residual activity often remains in Britain, the bulk of the wealth, jobs, technology, opportunity, tax revenues – and future capacity to pay good pensions – is gradually moving overseas. If we want more companies to remain British-owned and self-standing, we have to do a much better job of curating them.
Equally staggering is the lack of a public outcry, along with the extraordinary coalition of opinion and self-interest that resists reform. One reason for the exodus is that despite having one of the largest private pension systems in the world – supported by £50bn a year of tax relief – UK pension funds invest very little in Britain, and hardly at all in promising young British scale-ups. When UK scale-ups look to raise £100m or more to fund a decisive growth phase, most of the capital comes from abroad – and so does the ownership.
Many British pension funds claim it is their “fiduciary duty” to avoid such risk in the early stage of a company’s life – but in doing so they forgo the reward that comes with it. Instead they invest heavily across the world’s stock markets much more than pension funds in other countries. This must change.
UK pension funds invest very little in Britain, and hardly at all in promising young scale-ups
Which is why the government’s pension bill, published last Thursday, should be warmly welcomed. Britain needs to invest more in itself, and to mobilise more of its near £3tn in pension assets to support domestic companies. Instead of today’s multiple tiny pension funds, the bill proposes creating much bigger funds and then find ways, largely via our dynamic venture capital industry, of them investing into the next generation of British firms.
Several leading pension fund managers have volunteered to invest up to 10% of their assets in this way. And in case the industry as a whole does not – if precedent is any guide, they will move like snails if they move at all – then the government is assuming a reserve power to insist that they do.
Some in the City and pensions fund world have welcomed the bill as brave and necessary. Predictably, others have reacted conservatively. They protest that this is the state stealing pension fund moneys for political ends. They argue that if the government just lets market forces work, all will be well. But this is what got us here in the first place. As Sir Nicholas Lyons, chairman of one of the big four insurance companies, Phoenix, wrote to the FT, the aim is never to use the reserve powers – but there have to be some teeth to catalyse necessary change.
It is telling that British venture capitalists often find it easier to raise money from South Korea or Canada than here in the UK. Why is an attempt to get British pension funds – supported by tax relief – to invest as much proportionally as their overseas peers in their own great companies characterised as theft? It could improve pensions and boost growth. Rejecting this logic is the road to serfdom.
Next week’s spending review will incur howls of criticism – some justified. There will be damaging cuts in departmental spending. The government should never have walked into outgoing chancellor Jeremy Hunt’s trap and accepted the unaffordable cuts in employees’ national insurance contributions. Now it will be forced to make the case for vital tax increases. But credit is also due.
The combination of £100bn in increased public investment over the next three years, as pre-announced, the new pensions bill and sticking to the 100% capital allowance for business investment is the best effort I have witnessed to boost Britain’s weak investment record. In a world of poor growth, Britain’s broad-based economy is already performing less badly than most countries in the G7; it could do even better still. The next election is not over yet.
Photograph by CMR Surgical
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