Covid19 has been quite a shock to the system, grinding the world to an abrupt halt and causing economies to nose dive. All over the world business owners are grappling with the after effects of C19 and have never been as busy. Your business, that was built to be on auto pilot for day to day tasks, now requires you to rethink many processes and often only the business owner or senior management can deal with these new issues.
What we need to try avoid, in amongst this “new busy”, is losing sight of the opportunities that C19 presents. It is possible that your business and industry may now be better positioned to grow post C19. There are many industries that will be bigger and more profitable, for example online retailers; other industries will eventually return to something similar to the old normal, tourism businesses spring to mind; and those industries that are structurally worse, will need to re-invent their business models to be relevant post-COVID.
In addition, the cost of debt and business valuations have dropped significantly, and may stay at these levels for a while, creating a window of opportunity to grow significantly. If your business is in the winner category, or is positioned to return to the old normal, then your planets may have lined up and it is time to attack the market. If you are game for this challenge then the two question you need to answer are, where to invest your money, and where to get the capital.
In terms of where to invest, you have most probably been eyeing an industry, market, product or competitor and know exactly who to target. If not, some focussed strategic planning and research should be able to identify good opportunities. It is always a good idea to get a transaction advisor involved, who can review the logic of the acquisition/merger, advise on all the steps in the deal and protect your identity in the approach. Often you will find that it is easier for an intermediary to talk to a target and get them to open up and give some high-level information to make sure the deal makes sense.
The second focus area is funding the deal. There is no rocket science to raising funding, as a matter of fact it requires a fair amount of grunt work. It requires a good story, reflected in a simple well thought through set of numbers addressing all the questions the funders may have, especially those around cashflow. The financial model should be robust and should talk to the rationale of the deal; it should be simple enough to understand (don’t get tripped up by overly complex and detailed models) and detailed enough to reflect reality. It should include the proposed funding structure and be built in a way that key assumptions can be changed to test sensitivities. It should be built using best practice such as separating inputs, calculations and outputs and the model should reflect ratios important to debt and equity funders. The model should include a balance sheet, income statement and cash flow, the so called three statement model (“3M”).
The FD Centre can help you identify potential targets, sense check the rationale, support you in approaching and negotiating with the target, build a fit for purpose 3M model and raise the funding to take advantage of existing opportunities. We are flexible in our approach and are happy to provide the full service or support your existing resources to do the work themselves. If you would like to discuss how we can help you please feel free to contact Andrew Meerburg who is Regional Director of the Corporate Finance division in Gauteng or The FD Centre directly.