An increase in distressed investment expected
In autumn 2020 we conducted our Restart Capital Survey of over 500 SME business and over 100 investors.
There was a feared wave of corporate insolvencies with 35% of the business respondents expecting to be out of business within 12 months (and 43% of medium sized enterprises). 84% of the business respondents considered themselves distressed or just about sustaining. Given the dramatic economic impact of the pandemic, it was no surprise that there was a feared wave of corporate insolvencies which is expected to hit as and when the government withdraws the restriction on creditor actions and aid packages which are currently in place. Our bleak conclusions have since been reinforced by a number of other surveys.
However, our research also recognised that, as we start to emerge from the pandemic (and the vaccination programme provides a potential timeline) we can hope to see a significant increase in the number of investments in distressed businesses. 87% of investors in our survey responded that they either had experience of, or were interested in, distressed businesses. Whilst there will be numerous possible targets our survey recipients saw construction as their most favoured sector.
There is only so much financial support that the government can provide to support businesses, in order to protect jobs and livelihoods. It therefore seems sensible for the government to foster an environment which encourages and makes it easier for investors to be matched up with companies that are short of cash. The sooner and the more extensively this money starts to flow, the greater the chances of saving more businesses and jobs. We urge the government to offer tax incentives, risk sharing schemes, assist with introductions, and to cut down on regulatory burdens to help the process.
Graham Spitz is a partner in the corporate department at Fladgate. He specialises in a wide range of corporate work including private equity, mergers and acquisitions, joint ventures, reorganisations and corporate governance. Graham has particular experience in the technology, retail, insurance and engineering sectors. In addition, he has advised on the corporate aspects of numerous property acquisitions and disposals and property related joint ventures.