For many of us watching the global economy crash to a halt due to Covid-19 these last few weeks, the experience feels eerily familiar. Of course, no one expected a pandemic to push us into another down cycle, but echoes of financial crises past appear everywhere.
Industries already struggling with market headwinds will head into distressed situations on overdrive. Oil & gas will likely see forced consolidation from the impact of cheap oil prices, over-supply, and environmental regulations put on fast forward. Similarly, retail stores already shifting from big box models to heavier online footprints will be squeezed even harder by Covid-19 social distancing.
Meanwhile, other sectors like transport and tourism have found themselves on life-support in no time at all. (Except, that is, if you're in the private jet business.) Industrials and pharma are a mix, depending on who's serving the Covid-19 consumer goods and vaccine market - and who's not.
Strategy abhors a vacuum, and so do dealmakers. That’s why many take a wait-and-see approach while the market falls.
But take it from those of us who've been there: resist paralysis. There are practical steps you can make now that will help prepare you for whatever happens next. Trust us. You'll be glad you did.
So, as global markets hit pause, what are some practical tips we can glean from financial crises past?
1. Prepare for the worst
This first step is the hardest. Opening yourself up to the idea that your organization may be in trouble is painful. As a result, advisors say, businesses are often caught flat-footed, heads buried in the sand.
But a worst-case scenario plan doesn't mean your organization is doomed. Quite the contrary, it's like ensuring there's an extinguisher in your house in case of fire. You probably won't need it, but if you do, you'll be happy it's there.
So, what does a plan entail internally? Dealmakers agree that proactively modeling a recession business case is the most important thing you can do in advance. Moving production to variable cost models where possible and looking at how to build in reoccurring revenue streams will also keep shareholders and potential investors satisfied with your strategic planning.
2. Build your advisory team
Restructuring and bankruptcy processes are fraught with peril for organizations experiencing financial distress at high speed. Information leaks can easily throw day-to-day operations into chaos and open businesses up to litigation-happy creditors. Debt markets are woefully complex. Workouts and pre- and post-petition proceedings give even the smartest people headaches.
Are there non-core assets you can shed? Onerous real estate leases, lay-offs, or legacy technology to bundle under restructuring losses? Other financial vehicles to alleviate debt that you've never heard of?
Savvy advisors will provide thoughtful advice on these questions and others. But they're only as good as you allow them to be. Even if you believe your organization has nothing to worry about, talking your options through with a specialist helps with peace of mind for both you and your board.
3. Understand the new rules
Even for the experts, it's been a long time since the last big market crash, and a lot has changed. There are two trends with big implications for how transactions get processed, and those trends cut across sectors, geographies, and transaction types.
First, the global trend toward greater data privacy, as exemplified by the UK’s GDPR, the US’s eCCPA, South Africa’s POPI, and Asia’s various laws like Hong Kong’s PDPO, Thailand’s Personal Data Protection Act and Japan’s APPI, has created greater restrictions on how sensitive personal information is shared during and after a transaction. Add to this increasing nationalism and laws like FIRRMA sharply limiting what types of data can be shared with foreign entities, and it's clear that controlling who sees what information has gone from "nice-to-have" to "must-have".
Second, AI and machine learning have freed corporate clients and advisors from numerous repetitive, manual tasks. As a result, organizations and advisors can manage the ever-growing list of stakeholders and data more efficiently than ever before.
Both of these trends represent areas where cutting-edge technology solutions exist to help organizations navigate the new normal. To take one example close to home, Datasite has become far more than a data room, delivering key capabilities to automate manual tasks and simplify compliance. It now smart-categorizes your content and alerts you when documents or users need attention. Its integrated redaction tool can black-out terms on thousands of documents instantly. Before, those tasks took teams of people working for days at a time.
As you take an internal inventory of your business and think through next steps, we encourage you to reach out for a free training on our platform. Whatever strategy you wind up pursuing, brushing up on the tools that help you get there will never be a waste of time.