Reasons for hope

By Paul Heaven, director at Jerroms Corporate Finance

So what will the world of finance look like as the economy returns to something approaching normality after the Covid-19 lockdown?

Well we can probably take it as read that many bankers and fund managers will have figured out that working from home via Zoom beats the drudge of traffic jams and the awkwardness of elbow bumps.

We can also assume that re-banking existing debt and focussing on the existing client portfolio (banking speak for figuring out what we do with our own problem children before we adopt any new ones) is going to be the ‘new norm’ for a while. That said there is some cause for optimism that appetite for good acquisitions, buy-outs, property deals and even some growth capital deals will remain healthy.

Outside of retail, travel and hospitality (and even within those sectors where the online dynamics are right) there is no reason to believe that a good business before the pandemic lockdown is not capable of being a good business when things start to return to normal.

The capital markets have remained strong throughout the crisis; banking liquidity remains good; interest rates remain low and all of this means that the supply side of the financial markets appear to be reasonably virus free.

Most equity investors are backing management teams over a three to seven years cycle and the Government appears to be committed (even if somewhat confused as to how) to backing early-stage innovation and start-up equity.

With (fingers crossed) a greater emphasis on regional rather than one-size-fits all ill-conceived national or supra regional interventions there is even cause for optimism that equity finance may find its way to entrepreneurs with good ideas that fit local growth aspirations.

Sure, there will be a good deal of media focus on the businesses that don’t make it and for some years to come you can expect bank and fund managers to ask “how would your business handle a pandemic?”. But, despite the frequent comparisons, this downturn is quite unlike the financial crisis of 2008. In the recession caused by the bursting of the sub-prime bubble in 2008 the supply of money was the issue.

The banks did not want to lend and were frantically trying to claw back money that they had already invested. Back then owner/managers quickly came to terms with the fact that there was no point even asking for finance. In the aftermath of this new Covid-19 crisis the supply of money remains strong and governments around the world appear to have grown the spines to stand full-square behind the lenders where they are leaning on them to take greater risk.

Even the banking sector regulators are hinting at the need to relax some of their liquidity tests. If that sort of unity holds then then the money supply-side dynamics remain positive and where there is a good supply of finance, then good businesses have reason for hope!       

 *Jerroms Corporate Finance is a partner of Greater Birmingham and Solihull Growth Hub