In general, the insolvencies market has eased since the Summer and Autumn. If international capital markets continue to be robust, and governments around the world continue to adopt stimulus programmes, it is possible distressed corporate takeovers could be surprisingly few, writes David Little, Partner in our Corporate & Commercial team.
That said, the dam has to break eventually. Governments around the world have protected companies from administration for months. Once those measures are withdrawn, which could be as early April 2021, this could create a feeding frenzy by creditors who move swiftly to recover any funds owing to them by distressed companies.
Cash is king and a number of acquisitive investors are circling, read to strike.
Already, international investors have expressed interest in heritage brands such as Royal Sun Alliance, and TSB, Co-Op and Sainsbury’s bank. Investors who have weathered the storm will see opportunities to consolidate.
On the subject of ‘snap acquisitions’ of businesses that have gone into administration, acquisitions will proceed because many of them will be involuntary transactions, where the traditional rule of ‘willing buyer’ and ‘willing seller’ settling on a common transaction price will not apply. An obvious example is the attractiveness of a famous retail brand, Jaeger for example, whose owner Edinburgh Woollen Mills filed for administration recently. Expect news of a sale, any day soon.
There are storm clouds ahead
Governments around the world are all going to continue borrowing at near zero interest rates, to buy themselves time for the world’s economy to recover, hence this week’s Ministry of Defence £16.5 billon spending pledge for the next four years. But we still don’t know how the man and woman in the street will emerge from a post-Covid, vaccinated world.
The impact of the ‘gig’ economy cannot be overstated here. Post-Covid, with home working becoming so prevalent, the disruption to the current norms has been significant. The usual methods of conducting business, and even educating children and undergraduates, has changed. Many industries that could have anticipated a sunset of years are facing almost immediate extinction. When did you last use your landline telephone? Are you still shopping on the high street? Oh, and this week the government announced you won’t be able to buy a petrol engine car after 2030.
We can all expect an unprecedented level of acquisitions and takeovers in 2021 to 2022. That’s not to say that strong, well run businesses that have not had a great pandemic will go to the wall. Many good businesses have seen a temporary reduction in demand, or an inability to service the demand they have currently. Their distress is short term, with interest rates being very low during this recession, so they should be able to save themselves, if they plan ahead.
Our advice to business owners, as I wrote here last month, is to use the rest of the year to review your financial projections for 2021, and consider the restructuring options available to you. Avoid delaying this until the turn of the year, when the Government may ease back on the protection measures from creditors.
It is no weakness recognising you may need help. We will continue to monitor the situation very carefully, and stand ready to have a confidential conversation with anyone who may need to discuss their business’s future.
David is a Partner in the Corporate & Commercial team, a business lawyer, focusing on transactional work, especially acquisitions and disposals of businesses. He also has a corporate finance practice, focusing on smaller cap listings and fundraisings on the Standard List, AIM and NEX.
As a passionate sportsman and spectator, David has built up a credible sports practice, focusing particularly on governance matters and on marketing, merchandise and sports finance generally. He has also built up a large client following in the media, marketing and PR sectors, as well as restaurants, bars and contract catering.
He is well able to understand matters from the client perspective, having spent time working in industry as group legal counsel and company secretary for an AIM-listed financial services business and having also served on the Board as a non-executive director for an AIM-listed financial training company.
His clients value his commercial experience and his common-sense approach to transactions and company law matters, and he is viewed as pragmatic, focused and always accessible.
• Mergers & Acquisitions
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• Restaurants, Bars & Catering
Our business lawyers have the knowledge and experience to guide you through these challenging times and have been ranked in the Legal 500 for their expertise.
If you are in need of advice or assistance on any of the issues mentioned in this article please contact me via email or call me, on +44 (0)20 7079 4143 or another member of the Corporate and Commercial team.
The above is accurate as at 27 November 2020. The information above may be subject to change during these ever-changing times.
The content of this note should not be considered legal advice and each matter should be considered on a case by case basis.