Liquidity Crunch Much?

If you are a fan of the guest brokers on Bruce Whitfield’s Money Show, you would know – there are bargains to be had in listed shares right now. We have all heard the stories of fabulous fortunes being made in times of recession. ‘Take a punt’ they say.

Still… going along in this particular bear market might not be such a sure thing. Deep discounts need to be weighed up against the long-term impact that the pandemic might have on markets (insert ‘new normal’, ‘disruption’ and ‘pivot’ here). The undeniable truth is that some sectors might never recover, some businesses will not survive. Moral of the story … Buyers Beware! (that is assuming of course, you have extra cash lying around). Yeah right.

The market turmoil is ubiquitous, no company is immune, there is no corporate vaccine. The unlisted space is no different to the exchanges, albeit a little closer to home. Many businesses have succumbed to lockdown and company fatalities are high. While Covid19 relief measures have provided some respite, this has mostly assisted the workforce, and entrepreneurs are left carrying the can. SMME valuations have tanked in many sectors and yet owners are still contemplating selling their businesses. They have no option – the bank balance has dried up, the bills are piling up and there seems no end in sight. Or is there?

Before throwing in the towel, it is important that CEO’s exhaust all their options. Exiting in a buyer’s market is to be avoided. Act in haste, repent at leisure. By now, most businesses will have prepared detailed cashflow forecasts and will be implementing strict ALCO strategies. Inventory levels will have been run down, arrear debtor’s will have been collected, non-core assets sold off, rent and supplier payment moratoriums negotiated, headcounts optimised etc.

The next step for a wise entrepreneur would be to take a long hard look at the Balance Sheet with a view to undertaking a restructuring or refinancing. ‘Is there scope for raising additional capital?’ our intrepid CEO may ask. Well, equity is usually the last resort when it comes to monetising value. It is the most expensive, both in terms of the long-term cost of funding as well as upfront transaction costs. Also, finding a suitable investor with a chequebook in hand, is easier said than done.

On the other hand, raising additional debt in the current climate is considerably less challenging. The low interest rate environment and relatively relaxed credit regime lend themselves to a smoother process with a higher probability of success. Right now, banks are more sympathetic to ‘out of the ordinary’ liquidity gaps and there are many financial institutions to choose from, all vying for your business.

That said, the biggest pitfall to a successful fund-raising road show is poor information and ineffective communication. It is vital to approach the right financier, at the right time with the right request. Many SMME’s stumble at the final hurdle by not understanding and addressing the minimum term sheet requirements in a convincing manner. Packaging the loan application with bank friendly terminology, a comprehensive financial model and an impressive business plan is fundamental to a positive outcome.

That is where we come in. The CFO Centre globally enjoys formalised development partner relationships with many banks and credit providers, and we understand their product offerings and requirements. We are instrumental in assisting many small businesses to access Covid19 subsidies and grants during this time. We have developed many emergency cashflow arrangements and business continuity plans for our clients, often on a pro bono basis or at reduced rates, given the circumstances. We understand that unless your business is surviving and thriving, ours will not either.

So, if you are a CEO of a mid-sized corporate who has been contemplating divestiture, just know that The CFO Centre can assist you in this path, but we would strongly suggest that you delay this decision until you absolutely certain that there is not unseen debt capacity lurking in your Balance Sheet.

If you appoint one of our world class Finance Directors to undertake a Balance Sheet Optimization exercise on your behalf, you can expect that we will assist by identifying one or all the following:

1. Existing debt consolidation with longer tenor and upfront interest and capital moratoriums;
2. Short-term asset-based financing options (factoring, trade finance, working capital);
3. Hidden assets for collateral/security (off balance sheet leasing, cashflow discounting);
4. Long term asset revaluations (properties and investments);
5. Mezzanine debt capacity (preference shares, high yield bullet loans, PUK loans);
6. Risk hedging and derivative applications to improve Loan to Value;
7. Expansion and M&A opportunities (new markets, strategic equity partners, new products).

We will quickly present the various alternatives to you and, once you have ‘in-principle’ approval from your board, we will work closely with your finance team to identify the most suitable finance providers and put together a watertight, best of breed finance application that will maximise quantum, sharpen pricing and ensure that your liquidity nightmares are a thing of the past.

If you would like to discuss this further, please feel free to contact Walter Staffetius who is Regional Director of Gauteng East or contact The CFO Centre directly