insights
Corona shock: Approaching your bank for funding
We reflect on how to approach banks when seeking access to funds under the Coronavirus Business Interruption Loan Scheme (CBILS) or BoE Corporate Financing Facility.
With end of the Brexit Transition period fast approaching and a recession looming, are there now opportunities for companies to undertake strategic acquisitions?
It’s hard to believe four years have lapsed since the referendum which determined the UK would leave the European Union (EU). In the intervening years, it took three Prime Ministers and two general elections before the UK formerly left the EU on 31 January 2020.
The economic shadow cast by the pandemic has impacted businesses profoundly, with directors left assessing the continuing viability of their life’s work and for some, their legacies. Going into H2 2020 with Brexit looming there is a focus on business and employment preservation, and yet there may be M&A opportunities for some. For example, manufacturers may seek to protect their supply chains through acquisition or by forging strategic alliances. On the flip side some struggling businesses may seek to enter an accelerated M&A process to achieve a speedy exit as a preferred alternative to administration. And there’s plenty of liquidity available from banks and private equity firms to support deal doing.
Valuation will undoubtedly be a key factor in negotiating corporate transactions and being able to bridge the valuation gap will prove fundamental in transaction success. We’re likely to see more use of earnouts and other contingent pricing mechanisms. These allow for a degree of risk sharing between buyer and seller and help to bridge the valuation expectation gaps that will probably emerge.
As the Government relaxes the lockdown provisions, with social distancing still required there’s bound to be an impact on the deal doing process particularly on the speed of transactions. Timescales for conducting due diligence and holding management meetings will stretch out. And the diligence bar may be set higher with buyers focusing on challenges caused by COVID-19. Other trends may include the requirement to relax the usual restrictive covenants imposed on business operations between exchange and completion. It’s also likely that warranties and indemnities will become more onerous as buyers seek to place greater reliance on them.
There’s lots to think about when embarking on any corporate transaction. With the COVID-19 clouds still hanging over us, Brexit nearing the end of its journey and a recession likely, there are even more hurdles to overcome. However the number of opportunities is likely to increase for the savvy investor or purchaser to capitalise on. And careful planning, a degree of flexibility and good advice there will inevitably be some attractive prospects seeking a new home.