How to fund your firm’s next deal in context of Covid

Private equity can help businesses reverse the economic damage of Covid-19, according to Katharine Byrne, Partner Corporate Finance, BDO.

After several months of the world battling the pandemic it was unsurprising to see the level of M&A activity this quarter was at its lowest point since the recession in 2009.

“Companies were focussed on preserving cash and protecting their business as the corporate world scrambled to adapt to the crisis and build resilience within their core business,” said Byrne.

“In Q2, activity started to pick up in certain sectors like life sciences and tech-enabled businesses that had been robust enough to withstand the pandemic.

“By Q3 all other sectors started picking up their activity and people were talking about getting the right funding structure for their business or they were trying to rethink their strategy and how to go about funding that.”

Byrne said that while there is government funding in place for businesses, they need to ensure what grants are available, what the right debt structure is for them and ask themselves if they have sufficient equity to fund the business.

The Strategic Banking Corporation of Ireland (SBCI) Covid-19 Working Capital Scheme is offered in partnership with the Department of Enterprise, Trade and Employment and the Department of Agriculture, Food and the Marine.

Loans are available through AIB, Bank of Ireland and Ulster Bank. Approval of loans are subject to the bank’s own credit policies and procedures and Byrne said that businesses must be able to show that the loan is viable from a repayment capacity.

“There is still a window of opportunity to engage with the Enterprise Ireland funds that are available to businesses and there are ongoing grants available. But it is important that businesses are aware of the timelines on these, the eligibility criteria and the application process.”

“There is an equity gap at the moment,” she said. “At BDO this is what we are looking to address. Private equity has really come to the fore in the last quarter of this year and we see our role as an adviser demystifying private equity for businesses.

“There are many different types of private equity investor and each type will have a specific investment strategy and style. We are here to advise on everything from the right capital structure to understanding the future exit opportunities.”

She added: “Historically in Ireland, business owners would not have understood the concept of private equity sufficiently but now they are beginning to see the benefits that it can bring.

“You need to choose the right type of funding partner. You need to do your own due diligence and ensure that you have prepared your business so that it is ready for investment – a private equity backer is investing in the team and the future growth of a business. It can take time to do all of this.

“Businesses that take the necessary time to get their capital structure right and have thought through their strategy are in a much better position to be agile and to adapt to opportunities.”

As we head into 2021, Byrne said that we are going to see an increase in insolvency. “This means that businesses need to be actively engaging with their banks right now and taking advantage of any grants and supports that are available,” she said.

“Nobody should just assume that their existing funder is going to support them indefinitely through the crisis as banks and potential investors are going to want to see what a business has been doing to mitigate the impact of Covid-19 and Brexit, and how they have adapted to reposition the business.”

According to David O’Connor, Restructuring Partner BDO, “Covid-19 is impacting businesses large and small and across most sectors, although some are clearly feeling the impact more than others.

“In BDO we are advising our clients to engage with their creditors and funders now rather than leaving it too late. Taking proactive steps gives a business a better chance to reach a solution that works for all parties.

“However, should a business be unable to reach a consensual arrangement with its creditors then there are other rescue procedures available, such as Examinership and Schemes of Arrangement, that can help businesses get through these difficult times.

“Any of these solutions, be they consensual or non-consensual, are likely to require funding and private equity will be one of the preferred options in meeting this funding requirement.”