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Navigating choppy waters

Words by:
Director and Head of Investor Services
May 28, 2020

This article was originally published by Real Deals, please find the original here.

The impact of the global Covid-19 lockdown on UK deal flow has been stark and swift. Processes that haven’t been cancelled have been put on hold, with investors and advisors alike stopped in their tracks by current events.

The unprecedented nature of the crisis, its impact on pre-Covid valuations and, crucially, the lack of visibility beyond the immediate future – including the potential for future lockdown periods – makes determining the future profitability of any business near impossible. Until the economy starts to recover and we have more clarity on which sectors have been particularly hard hit by lockdown, that lack of visibility will continue.

Changing roles

Given the drop-off in M&A, the role of due diligence providers has changed. As political risk specialists, WA has been able to swiftly pivot away from transaction-specific work to support investors, and their management teams, in other ways. Helping them understand and navigate the rapidly moving political landscape has been key, as has supporting communications that have needed to be had with staff, customers and other stakeholders.

The savviest investors have made available a raft of specialists to their management teams to mitigate the worst of the crisis and to get them in the strongest position possible for when the recovery begins. Policy, government relations and corporate communications specialists have been key amongst these.

Political shifts

Politics is moving at the most rapid pace we’ve ever seen. Policy making has become a public spectacle, with all the missteps, U-turns and teething problems being played out in real-time. Policies that would usually take months of careful planning and consultation are being rushed out in a matter of days, set out in broad strokes, with detail being back-filled.

Government is watching the business response to any measures announced like a hawk and has already demonstrated it will tweak its position if a robust case is put forward on why it should do so. The burgeoning number of business support schemes to cover different parts of the economy, as well as the extension to key policies like the Job Retention Scheme, is a clear illustration that government is reacting to business sentiment, and needs input from experts to make sure its support is both sufficient and appropriately targeted.

Lobbying government, on the face of it, looks easier than ever. Not only are policymakers arguably more alive and responsive to external events than ever before, but they are actively
seeking input from business. But a word of caution – influencing policy at a time of national crisis is only possible if it is done so sensitively with an acute awareness of the government’s wider set of priorities. The case needs to be made to the right people, at the right time, and be reinforced by advocates and influencers that have a say in the decision-making process.

The five ministerially-led ‘taskforces’ are one recent example. They have been designed to advise on the development of guidelines to underpin the government’s back-to-work ‘roadmap’ and will be seeking input from sector specialists to make sure the voice of business is heard. The taskforces have already been inundated with communications so making your business stand out will be crucial.

WA has already supported several companies navigating business-critical issues to make their case to government, positioning them as part of the solution to getting the UK economy back on its feet.

From putting together an evidencebased campaign to get the housing market moving again, to demonstrating the valuable role of cycling as an alternative to public transport, we’ve helped businesses engage with government in a way that helps them achieve both commercial and policy objectives at a very challenging time. 

‘New normal’

Once the market returns, it’s likely to be busier than ever on the M&A front. Demand for businesses that have demonstrated their resilience are likely to do particularly well, and competition for these businesses will be fierce, more so if other deals slated for the latter part of the year have fallen away.

Political due diligence will be more important than ever. Covid-19 has shifted the political sands and some things that we may have taken for granted – the government’s appetite for political intervention, the size and reach of the state, tolerance for poor corporate behaviour – we will no longer be able to bank on.

Government has already promised a “rapid re-engineering” of government’s structures and institutions to deal with this historic emergency and to “build new long-term foundations”. This is the ‘new normal’ we’ve been hearing so much about.

What is also clear is that once the dust has settled, there will be a corporate reckoning to sort those businesses deemed to have had a ‘good’ crisis from those seen to have performed poorly – either in how it has dealt with its employees, how it has communicated to customers, its approach to senior pay and dividends, and the asks it has made of government, financial or otherwise.

It is vital that businesses plan now for the aftermath and ensure they are preparing their case, planning their communication strategies and reaching out to potential advocates. Failure to meet political and public expectations could result in lasting reputational damage and potential excessive intervention by government. There are currently 17 Select Committee inquiries already underway relating to the coronavirus response of government, four of which are directly scrutinising the response of businesses.

As Winston Churchill once famously said, this is “perhaps the end of the beginning,” but we are a long way from this crisis being over and businesses that move now still have time to get ahead of the game.

 

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