As the impacts of COVID-19 play out in the industries we serve, all company leaders are facing nuanced challenges and opportunities. Our team’s sub-vertical industry structure is proving increasingly valuable as we advise our clients and contacts. The more plugged-in we are, the better counsel we can provide.
We have been talking as a team about common themes across industries—what company leaders need to understand as they navigate the weeks and months ahead. We are facing a new normal—a post-COVID environment in which three areas of focus are paramount:
1. Understanding the demand for your business: Monitor leading indicators to assess the sustainable demand for your product or service. When you see a pick-up, ask yourself whether it is real or if it is a short-term blip. For example, some of our food & ingredients clients saw a big spike in March, but now are returning to more normalized long-term demand levels.
This assessment requires peeling back the onion by:
- Reading the market
- Understanding trends impacting your business and whether they are structural or temporary
- Knowing what is impacting your clients and their pipeline
- Talking to your partners, customers, and key relationships
2. Revisiting your strategic plans: Do not wait for the next strategic planning cycle. Everything has changed, and fresh data must be collected and considered to form new underlying assumptions for strategies. Reevaluate all potential strategic options to update and communicate clear goals to your team. Determine whether you need to reconsider your acquisition strategy or adjust your timeline for a sale or capital raise.
3. Managing liquidity: Keep liquidity and cash at the forefront. Maintaining balance sheet strength will allow for greater flexibility down the road, either for defensive or offensive initiatives and opportunities that may arise. Consider, or reconsider, all available equity and debt capital options to optimize your balance sheet. If you believe there could be opportunities to grow or acquire that require capital, consider investing time in proactive capital markets conversations to garner insights on available options and prepare to capitalize on a financing more quickly when an opportunity does arise.
Here are some additional practical steps and advice from our team for the new business environment:
FINANCE:
- Be flexible as to the trajectory recovery may take. Thoughtfully prepare for a downside or neutral-to-negative case while still hoping for positive outcomes. If you only plan for the best-case scenario or a quick recovery and do not define contingency plans, you put yourself at risk.
- Re-assess your short term and long-term incentive plans. Do the metrics or weightings need changing either to best retain and incent your people or to guard liquidity? Some companies have added special incentives for sales teams, and others have set caps on incentive payouts to preserve liquidity.
DATA GATHERING:
- Have peer group and benchmarking discussions with similar businesses so you can make your decisions based on data and criteria specific to you. Beware the echo chamber. Forecasting demand in a vacuum internally is not enough. Strive to talk with people who may not agree with you.
- Stay in close touch with your board to draw on their diverse experience. Many boards are having regular informal calls with their CEOs and management teams outside of regular board meetings.
PEOPLE:
- Communicating openly, honestly, and frequently with your key constituencies—employees, customers, and partners—remains critical.
- There is no consensus when it comes to “return to work” plans for employees. There are varying degrees of concern and comfort levels, and a one-size-fits-all plan will not work. You need to have a customized strategy with a lot of options built-in for different sets of people, and you should survey employees about their comfort levels. Here are some questions to consider:
- How often will your people work remotely?
- How often are they coming into your facility?
- How distributed or centralized is your environment?
- What safety precautions do you need to take?
- Congress has yet to set guidelines that give business owners adequate comfort in terms of liability for employee safety. This will dictate how employees will be able to interact with clients and partners, and that factor must be addressed and understood.
M&A:
- There is a record amount of capital overhang. Private equity, direct family office capital, and other pools have about three times the amount of capital they had in 2008.
- For the right deal and the right structure, there is capital eager to get to work. This is different than 2001 and 2008 when capital was available but was not being deployed.
- It will be important to separate the wheat from the chaff when it comes to evaluating capital sources. While there is an abundance of capital available, there will be certain industries where capital will go in aggressively, moderately, or not at all. Knowing the right capital providers for your specific industry is critical, as well as understanding that not all capital is created equal.
- Some capital sources are well-positioned to make decisions and move quickly, while others will require a lot of activity but not get you anywhere. You may need help assessing whether someone is wasting your time—using you to educate themselves—or if they are serious.
Promising Industries
We are seeing promise and activity in the technology, healthcare, food, beverage, agribusiness, and industrial automation sectors.
Continuing with our “What’s Now? What’s Next?” series, we’ve highlighted below thoughts from two of our team members from these more active sectors:
- What’s Now and Next in Telehealth?
- What’s Now and Next in Advanced Manufacturing and Industrial Automation
SUB-VERTICAL INSIGHTS
Each member of our team is dedicated to remaining deeply connected within the industries they serve, bringing valuable information to clients, and staying ahead of trends impacting their sub-vertical areas of focus.
We would love to speak with you about what we are seeing and hearing. You can view our bankers’ contact information on our team page or browse bankers by industry here.