Nearly every company in every industry is focusing on business survival. Once business operations are stable, many companies will look hard at their balance sheets to decide whether they need deeper cyclical buffers through additional equity, or should shift their debt away from banks to bonds, or prepare speedy disposals of non-core operations – or, get ready to take advantage of the new opportunities.
In the 2008 financial crisis, banks which were the first to tap the market, did so at relatively attractive pricing, and got the attention of high-quality investors looking to quickly put money to work. Those that waited weren’t so fortunate.
At the time of writing at end March 2020, UK companies have already tapped the equity market in the last week for rapid capital increases, and investment grade corporate bond global issuance in March was near all-time high volumes.
UK and European stock market regulators have reacted to the extremely uncertain operating environment by giving companies with listed instruments more time to complete their year end financial reporting. However, this risks crowding competing issuers into a narrow window, which could severely limit available capacity in the professional firms and perhaps even at the regulators.
What’s more, companies that don’t give information, risk the market already judging their performance. As the Financial Times Lex column put it, “…the less detail a company gives, the more likely it is to be facing difficulties….The market has already worked out they look stretched. The question is this: what are they doing about it?”
In the context of the Race to Recapitalise, any company that believes it might need to tap the markets, should prepare as quickly as possible. It’s even possible that companies taking the additional time granted by the regulators to gain certainty, ultimately puts them in a worse position. To use a current quote by Dr Mike Ryan, Executive Director at the World Health Organization “The biggest mistake is to not take action.” A sentiment that could apply to companies that do not actively explain to their investors the long term impact of the current crisis.
A major global crisis is an opportunity to announce overdue clean-up transactions, perhaps even resetting the company’s narrative to the market. Whether this is their M&A intentions, moving a primary listing, amending the guidance on capital structure or the entire business model, or dividends- all these can be addressed if they complement the company’s new statements on its operations and earnings. And given that ESG portfolios have so far seemed less impacted than others, a company that is quick to market could be viewed even more favourably if it can already demonstrate actions to support customers, suppliers and employees.
SPEED OF EXECUTION IS KEY
The Deal Team is the first professional transaction manager for listed equity and debt capital markets transactions and M&A, providing dedicated Deal Captains to project manage transactions within existing management teams. Based in London and working across Europe, we are experts in delivering complex long lead-time transactions. We know how to maximise the speed and efficiency of execution for deals such as rights issues, high yield bonds, and M&A disposals, among others.
In 2Q 2020, we have published weekly articles on the internal execution steps a company should consider in order to win the Race to Recapitalise:
- The key lessons of crisis management
- Getting to an answer fast: Financials and Forecasting
- Tapping your shareholders: Rights issues best practice
- Managing the details: best practices for due diligence and dataroom management
- Preparing for the first listed bond
- Disposals – how to take control and avoid the fire sale