Private Equity Money Available
First the bad news. Yes, it’s going to be tough and, unlike the recession of the 1990s, we are not going to be led out of this downturn by consumer expenditure. A combination of worldwide turbulence on the stock market, credit card debt, falling house values, rising energy prices and general inflationary pressures are undermining confidence and, as the banks tighten credit lines, even those wanting to continue spending will find it more difficult.
Whilst I may be painting a rather gloomy picture, it has to be said that times are extremely tough, but unlike the last recession, companies are generally in far better shape to ride out the storm.
My best guess is that we will hit the bottom of this economic quagmire towards the end of 2009, but recovery is likely to be a long slow process which will be business-led.
Who can dispute the maxim ‘cash is king’ in such economic circumstances. So is there any good news on the horizon? Well, as I mentioned earlier, companies are generally fitter and leaner than in the past and, well run enterprises will continue to move forward.
And there is still a substantial bank of private equity money available for the right business opportunities. Here at Catapult – we are still open for business and being approached by increasing numbers of enterprises looking for funding. Some of these opportunities would not normally come our way but, with the banks generally not doing deals at the moment, we are benefiting from the situation.
And it’s not just the banks pulling away from investment. Private investors are also turning their back – wanting to find a safer haven for their money.
But, private equity investors know that even in recessional times there is money to be made and, sometimes such circumstances provide a buying opportunity. However, owner managers need to recognise that the value of their businesses have inevitably fallen from the highs of even just six months ago. Now is the time for a dose of ‘realism’ when it comes to prices (but then I would say that).
For those businesses seeking funding, it is more vital than ever to present a well structured business plan with the right strategy to take the business forward. Catapult and other private equity players, are certainly not looking to provide short term funding to new businesses to help see them through a difficult patch. We are looking for companies with good management teams, competitive products and that are hungry to develop their market. Read more about funding here
Whilst sectors such as retailing and house building are to be avoided, there are others arenas that look relatively strong including healthcare and hi-tech.
Certainly, companies need to keep a close rein on their expenditure and keep on top of collecting debts. Avoid ‘tying up’ money in working capital – quite simply work hard at both collecting and generating cash.
Good management teams will look at the current situation and evaluate what the threats and opportunities are for their businesses: not only in the coming months but over the next two to three years. Cost cutting measures undertaken early on are likely to reduce the need for drastic ’surgery’ later on.
The Government clearly recognises the problems that businesses are facing and are very definitely in listening ‘mode.’ At the time of writing this article, the Government was due to announce a series of measures aimed at helping SMEs – we will have to wait and see if there is any real benefit to be had from these, or whether it will be a matter of ‘window dressing.’
At this time, management teams need to be pro-active and be on the lookout to strengthen their business base – times may be tough but competitive enterprises will usually find a way to return a profit!