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The Corona virus: problems and opportunities

March 23, 2020

Now that the blue monster of the Brexit is obviously fading into the background, society is facing the even worse Corona monster. It is good to see that the government, in good cooperation with all relevant stakeholders, appears able to take quick action in this new economic crisis. How different it was during the last crisis in 2008. But let's not forget that we are only at the beginning of the consequences of the global epidemic.

 

The Corona virus: problems and possibilities 1

For entrepreneurs, it is crucial to first take action on those things that are in their own hands, such as good liquidity management, close contact with the main debtors and creditors and, last but not least, with the financier.

For two months now I have been involved as an advisor with a large company in the care sector that is in dire straits. We started by taking the most logical and necessary first steps, such as: liquidity, shareholder contribution, looking at the workforce and contacting the bank. The latter is particularly difficult because the Special Management department has taken over the relationship, apparently without sufficient explanation. As a result, past events often have to be explained unnecessarily, which causes irritation on both sides and costs time. It would be advisable to spend more time on this transfer, especially now. The parties are condemned to each other and we had better make the best of it.

Naturally, we can expect the bank, as well as the tax authorities and other relevant parties, to realise that various options that would be logical in a stable market are now fading into the background. These include the search for another financier or an investor.

We are now working hard to find an investor who is willing to invest risk capital in the company. This is the wish of both the bank and the company, and the shareholder is also prepared to sell a majority of the shares. For the record, I would note that the company is fundamentally sound and operates in a market that is still growing. This means that a great deal of time and attention is now being devoted to setting up the data room, drafting an information memorandum, compiling a list of potentially interested parties, and so on. Given the world that is developing around us, are we doing the right things?

If we now talk to advisers in the field of mergers and acquisitions and ask them how they currently view the market, it becomes clear that the financial parties in particular are pulling back. A fair number of transactions have been put 'on hold' or have been withdrawn from the market. In any market, good or bad, an acquisition can be a good decision.

However, the buyer will wonder whether the transaction can be properly explained to shareholders and investors. We also need to ask ourselves whether financial institutions are keen to finance acquisitions at this time. In short: if you go to the market with a potential investment now, you have to be sure of your case.

You should therefore focus all your energy and attention on actions that are certain to yield results and postpone less promising actions, such as finding another bank or attracting risk capital, until further notice.

Finally, let us hope that all the promises of solidarity made by government, banks and others are kept.

 

Frank Steenhuisen, JBR

Frank is an associate at JBR. He is a financial consultant who helps companies with Special Management situations, refinancing and restructuring.