Well life has certainly changed since my February update. The onset of the Covid-19 virus has turned our worlds upside down and we are all adapting to a new way of life, at least for the time being. From social distancing and children being home schooled to entire companies reducing personnel in offices to skeleton staff and employees working from home, we have never, and probably never will again, come across such strange and uncertain times. For a lot of us it’s given us the much needed time to slow down and spend time with our families. Sadly, for others it has brought unimaginable tragedy – to anyone personally affected I offer my sincere condolences.
The private equity market is one of many in which things have changed greatly. There’s far less emphasis at the moment on new business and instead more focus on sustaining and growing existing portfolio companies. We’re set to enter the worst recession in history and the indications are that the amount of new money being invested is likely to fall by 15-20% at least this financial year. Those of us with long memories will know that PE houses have handled financial crises before and they will expect to be busy off the back of this. The real skill, as always, will be identifying the right businesses for the future.
What’s clear though is that business won’t be the same as we’ve known it to be. The Covid-19 crisis will inevitably lead to a lot of corporate restructuring and refocusing, and I would expect that, in turn, to drive a strong M&A market in the 12-18 months after we have some clarity of how the crisis will end. Companies that were in good financial health going into this will be looking to acquire those businesses that have not been able to weather the economic disruption whether they are competitors, customers or suppliers.
We’re already seeing much more remote working and I would expect the level of remote working to maintain at a much higher level than previously. As we have already seen this has led to a huge increase in the use of technologies such as Zoom, Microsoft Teams, voiceover technology and security for remote access working. Business will boom for IT companies and their suppliers that operate in these markets. As well as home working, we’ll also see a change to the ways that people operate when they’re in the office, with hot desking and social distancing becoming a way of life for at least the medium term. Some offices will invariably be downsized too as more people continue to work from home, all meaning that the commercial property market will have some serious issues to face and I anticipate that the logistics market will see a significant upturn in activity as companies and supply chains seek to reorganise.
On a personal level I was glad to see a number of transactions completed before the Budget, including three where the sellers were keen to maximise entrepreneurs relief which was expected to be reduced in the Budget and was reduced from £10million to £1million. Since Coronavirus hit, three deals that I was working on have been put on hold, one for 12 months, but from the conversations I have had with other corporate lawyers, business owners and PE Houses I am confident that the corporate transaction market will come back strongly in the medium term once lockdown ends.
As for business right now, I’m currently still working on a disposal and doing some commercial contract work for companies supplying to key industries where, as you can imagine, terms of engagement have had to be very flexible for supply and distribution work
I continue to have some great conversations with my clients and contacts, and I do believe that once lockdown starts to be lifted we’ll see a significant increase in the number of transactions taking place. I wish you all well with your work endeavours not to mention keeping yourselves and your families safe.
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