Record Point is an independent corporate advisory firm with operations in Sydney and San Francisco. We specialise in domestic and cross-border advisory services for public and private companies including mergers and acquisitions, capital raisings, corporate partnerships, debt advisory, restructuring, strategic reviews and valuations.
Whether it is the latest news, the empty shelves in supermarkets, the eerily quiet streets across major cities or the work-from-home and home-schooling arrangements, the daily lives of people around the world have been indiscriminately impacted by the COVID-19 crisis. Similarly, the bullish sentiment of global financial markets that we have long been familiar with now seem like a world away as equity markets plummet amid a backdrop of volatile trading, while debt markets temporarily stall.
The Government in Australia and across the world are responding aggressively (at varying rates) as they desperately play a balancing act of enforcing social and commercial restrictions to “flatten the curve,” consequently driving a sudden economic slowdown, whilst at the same time attempting to hold these economies together through fiscal and monetary stimulus (along with other measures). Time will tell whether Government responses will be effective. For many businesses here in Australia, COVID-19 will test their ability to survive and unfortunately, many will succumb.
With the unprecedented and unrelenting pace of change in the situation, it is understandable that some businesses have become swamped in unending news flow and struggle to keep up with daily administrative and logistical requirements to maintain operations. In this regard, and while acknowledging that each business is different, we would like to iterate 4 key messages to business owners during these unprecedented times:
Be calm and move quickly
Challenging times call for strong leadership from business owners. They have the burden of balancing the needs of various stakeholders (employees, shareholders, landlords, customers etc.) with the sustainability of the business. Employees in particular are looking for strong leaders to set a pragmatic and results-orientated tone, mitigating uncertainties and anxieties they may be experiencing personally.
Be Connected
Work-from-home arrangements and the promotion of social distancing makes operations, logistics and coordination more challenging. However, it is at these times of uncertainty when clear and direct communication and engagement matter the most, and unlike prior major downturns, we now have access to technologies that enable us to retain and even increase our “virtual connectivity” with colleagues, customers, suppliers and advisors. We expect that the increased use of systems like Zoom and Microsoft Teams is likely to have a lasting impact and will continue beyond this crisis.
Be prepared
There will inevitably be difficult and urgent decisions that need to be made under stressful and perhaps emotional conditions. While it is difficult to make such decisions when things are changing quickly and new information is continuously coming to light, taking no action is not a viable option. Depending on the depth and length of this downturn, we expect a significant number of businesses will be required to consider their capital position. This makes it critical to be well prepared with flexible, scenario-driven financial modelling for stress testing while regularly assessing any available pools of capital to the business. We can see a scenario where capital providers (including banks) will be swamped with enquiries, making preparedness and early engagement even more important.
Be well advised
Connecting all the dots can be overwhelming, and few business owners have the ability to cover all the commercial, operational, financial, legal and tax implications of their journey ahead.
Australian regulators are trying to assist businesses, and company directors need to fully understand the “safe harbour” rules and recent relief legislation to protect themselves if the business is in financial distress.
Business owners also need to be aware of the costs and benefits of intentional voluntary administration which could protect the business through a protracted downturn.
Alternatively, businesses may seek to raise capital to shore up their balance sheet or pursue a merger or acquisition to add scale, each of which requires expert advice to execute effectively in this environment.
Summary
COVID-19 is causing a rapid change in the social and business landscape. The survival of many Australian businesses will be tested, and they will require strong leadership, increased connectivity, timely preparation and potentially external support and advice in order to navigate through the challenges ahead.
At Record Point, we are following COVID-19 developments very closely and regularly talking to our clients about strategies to support their businesses. If you are looking to understand what COVID-19 may mean for your business, please feel free to reach out to one of the Record Point team for a confidential discussion.
March 28th, 2020