The Government's White Paper on Competitiveness seeks to change this by putting entrepreneurialism at the heart of its push to modernise the economy. However, a straw poll of small businessmen conducted by The Independent on Sunday last week suggests that the Secretary of State for Trade and Industry, Peter Mandelson, has an uphill task.
Barrie Pearson, executive chairman of Livingstone Guarantee, a specialist in mergers and acquisitions for small and medium-sized UK firms, says Britain's privately owned companies are much underrated. But he suggests that pressures on British businessmen to generate high short-term returns will stop an upward re-rating of the sector.
The UK has 8,300 independent companies with annual turnover of pounds 5m to pounds 75m. There are about 600 mergers and acquisitions a year in this sector. But, says Mr Pearson, "many of our best small independents go to foreign buyers."
The invisibility of the sector trans- lates into a lack of appreciation for its economic potential. "Often, foreigners are quicker to recognise an opportunity when one of our small or medium-sized independents goes on the market," says Mr Pearson.
The following are three private UK companies with exceptional growth potential snapped up by foreign buyers since 1995.
Bloxwich Engineering was founded as a family-owned West Midlands furniture lock maker in 1915. In the1950s it began making automotive locks. A decade later it began making locks for cargo containers. After boom times in the 1970s, it was hit by the 1980-82 recession. Then it faced new competition from Asia. In 1987 the company won a major contract to supply locks to Rover. Then it exchanged equity with a Korean firm.
But these moves failed to stop the company's slide. By 1994 it had cash- flow problems. "We spent a year looking for a buyer," says Bloxwich's finance director, Peter Elton. "There was considerable interest on the part of British engineering companies. But British companies tend to be conservative in their pricing."
Bloxwich found American buyers were willing to pay more. But like their UK counterparts, US buyers were interested in the automotive lock business, or the cargo lock business, not both. Through Livingstone, Bloxwich contacted a Malaysian holding company called Mega First. "Mega's biggest asset is a copper mine, the largest mine in the Asean region," says Mr Elton. "But it will be exhausted early next century, so the Malaysians are looking for new assets. The country is developing its own car, the Proton, so it was interested in automotive locks."
In 1995 Mega First bought Bloxwich, and with the new equity the West Midlands company expanded into South Africa as well as Malaysia. Its turnover has risen from pounds 20m in 1994 to pounds 27m in 1998.
"It's a tough market now," says Mr Elton. "The collapse of Asia's currencies has decimated Asia's export business to Europe."
Still, he believes Bloxwich is well positioned: "People think of us as metal pressers, but we're not; we're engineers. Our fabrication is shifting to Asia, where costs are low. We anticipate a 40 per cent growth in turnover over the next three years."
In financial journalese Liverpool- based Tilney Holdings is a boutique fund manager serving high-net-worth individuals through a network of nine UK offices. In reality, Tilney is the catch that got away. In 1993 the Royal Bank of Scotland sold Charterhouse, its City-based merchant bank, to CCF of France and BhF of Germany for pounds 300m. Neither the buyers nor the seller were interested in Charterhouse's private-client fund management business.
"After looking at the options, RBS decided to invite the executives of this business to do a management buyout," says Tilney's finance director, Peter Green. Since 1993 Charterhouse has done well, but Tilney has done spectacularly - funds under management total pounds 5bn.
In the spring Tilney sold a 25 per cent stake to US fund manager Forstmann- Leff, a unit of Refco, the number three commodities and futures house in the world. Suddenly, instead of being the unwanted rump of a pan-European deal, Tilney is the UK agent of a US-based financial services operation diversifying internationally.
Cut-price airlines like easyJet, Ryanair and Go have commanded headlines in recent months. Their profitability remains questionable, however. The numbers of an even smaller airline, Newcastle-based Gill Airways, tell a more upbeat story.
Gill was founded 30 years ago as an air-taxi service. But it got a Class A licence allowing it to carry more than 17 passengers. The company stumbled along financially under its founder, Flight Lieutenant Gill, and two ex- British Airways pilots who took it over from him a decade ago. In February 1995 a syndicate of private equity specialists bought the airline. Fourteen months later the company called in corporate recovery specialist Bill Price to put the airline on a firm footing.
Mr Price consolidated Gill's night freight service and its passenger routes between Newcastle, Aberdeen and other regional airfields.
He took a look at the deregulating European airline industry. Airlines linking regional points will have a hard time, he believes. "What we're doing is filling in major airlines' regional routes," he says. Gill connects KLM to Newcastle via Paris. Under a new agreement with Air France it now links the French national flag- carrier to Newcastle as well.
After recording losses for much of its history, it reported an operating profit of pounds 3.6m on turnover of pounds 28.6m in its latest financial year.
"We couldn't do a deal with BA because BA would want to take away our front office, thus reducing our leverage," says Mr Price. "Air France lets us keep our front office, and our ability to sell tickets, and this gives us a future." Copyright: IOS & BloombergReuse content