Coronavirus & Corporate Transactions: Looking to the Future

Wednesday 1 April 2020

There is no denying that the Government enforced business closures and significant decrease in footfall and spending, as a result of the Government #StayHome initiative, have adversely impacted most sectors within the UK economy. This downward trend has been mirrored across the globe and reflected in the markets.

Our blogs over the last couple of weeks have mainly focused on the immediate impact that the Coronavirus has had on your lives and businesses, and what can, or may need to be done, to minimise any negative impact.

However, what about those business owners amongst you who have been, or were about to begin, working on their medium term exit strategies and/or retirement plans?

Short-term downturn?

Firstly, there is evidence that the marketing of corporate transactions has been put on hold until buyer appetite returns.

However, it would appear that there is a common view that the various Government schemes will be hugely significant in boosting the eventual recovery in the UK.

With empirical evidence from China indicating our lives should normalise within three months of the initial UK outbreak (with more conservative estimates suggesting it will be closer to six months), it is optimistically anticipated that the downturn will be a short-term issue, and that the situation may be largely resolved towards the end of 2020.

Opportunities

Whilst the downturn does, for now, rumble on, it would be prudent to take this time to explore what opportunities it could bring for your business.

If you are in the process of building your business for an exit, perhaps there are opportunities to purchase distressed businesses in order to increase your current capacity, break into a new regional market or reduce production costs by purchasing a supplier?

Similarly, could purchasing a distressed business to diversify your current offering be a wise strategic move?

Diversifying the products and services offered by your business, or the sectors your business operates in, can help to manage some of the negative impacts of any downturn in a particular sector, a change in consumer trends and appetite, or a global pandemic.

If you are interested in finding out what opportunities might be out there for you, our Corporate team will be happy to make some introductions to help you on your way.

Preparation

It is likely that the years to come, with the Coronavirus and associated downturn still in recent memory, that any buyer will have a number of Covid-19 influenced topics high on their agenda during their due diligence investigation of a target.

There is no doubt that a buyer will scrutinise how robust a target’s contingency planning is during the due diligence procedure. The current crisis provides a perfect opportunity to stress test your business continuity plan and ensure that any weaker areas are shored up.

A buyer is also likely to seek evidence that your business has suitable insurance policies in place (such as business interruption and payment protection policies) to aid the business through unexpected crises and emergency situations, such as a coronavirus pandemic.

Now would be a good time to review the insurance policies that your business has in place already, and speak to your broker to weigh up the costs and benefits of any additional products and protections that are available.

A key step in a buyer’s commercial due diligence investigation usually involves analysing a target’s material contracts, be that supplier or customers contracts, or both.

We can assist you in reviewing your contracts, and can advise you with regards to what changes can be made to tighten up those contracts, in order to protect your business in the face another major business interruption, similar to coronavirus.

If a trade sale features in your exit strategy or retirement plan, it is advisable to begin preparations for the sale several years before your desired exit date.

In our experience it is always more reassuring to a buyer if their due diligence investigation reveals that a target has stress tested its contingency plans and any key or material customer or supplier contracts. Ultimately, this allows for a smoother transaction process.

If you would like to discuss the early steps you could take to prepare your business for sale, please email or call us today on 0113 207 0000.