1. Strategic opportunities
Moving quickly and effectively to take advantage of opportunities to buy companies and assets where stress acts as trigger for a sale process or fluctuations in asset prices can drive attractive valuations (including not simply how to assess and execute potential transactions quickly in a stressed market but also how surrounding regulatory and anti-trust issues may create barriers or opportunities). Assessing whether to raise additional capital as firepower to move quickly if strategic opportunities do arise.
Falls in sterling are likely to create attractive opportunities for acquisition of UK assets by international investors over the near term whilst the growth of warranty & indemnity insurance has fundamentally adjusted the approach to risk allocation in the wider M&A market.
2. Critical business issues
Identifying and proactively managing areas of potential risk (including the business’s most important relationships with creditors, contractors and strategic and joint venture partners) and protecting key assets, including people and talent.
The increasing complexity in the way businesses and their relationships are structured and increasing reliance on data, digitalisation and digital infrastructure bring fresh challenges which would have been unrecognisable a decade ago.
3. Capital raising and liability management
Anticipating and addressing pressure points in funding and capital structure both of the business itself and those of strategic partners (including the impact of debt servicing and maturity challenges and the need or opportunity for proactive refinancing, raising of new capital or debt reduction measures, both short and long term).
The growth of the alternative lending market has significantly increased the opportunities to raise capital on the debt markets (including for distressed businesses) and is a fundamental difference to the market in the last significant downturn.
4. Restructuring tools
Understanding the key features of the restructuring and insolvency tools available (in the UK and other forums) and anticipating potential impacts and how to put your business in the best position as a creditor or a debtor, customer or supplier, if the worst happens (including both acting proactively to initiate a procedure and being ready to respond effectively to a procedure started by others).
The new Restructuring Plan regime – less than two years old – is a useful addition to the UK toolbox facilitating a restructuring of debts even in the face of a dissenting creditor group.
5. Governance and the Board
Discharging the responsibilities of directors to make difficult (and quick) decisions as they navigate both the challenges and opportunities of turbulence (including achieving an appropriate balance in weighing up downside risks, taking practical steps to manage possible personal liabilities, considering the position of nominee directors on joint venture boards and the potential role of activist investors, opportunistic takeover approaches and possible minority prejudice claims).
The last few years have been marked by the increasing prominence of Environmental, Social and Governance issues and the ever sharper scrutiny of corporate decisions, both in the public markets and the wider business and consumer environment, and any Board will need to assess how to balance short terms stresses with important medium and long term priorities.
Insights and next steps
With the business world marked by increasing complexity and interconnectedness, in times of stress it is ever more important that businesses are proactive in identifying the threats and opportunities which they have and in taking actions to manage risks and take opportunities. In many cases, this can be as simple as assessing a key relationship and ensuring it is being managed according to contractual terms which are already protected on paper or ensuring the Board understands its responsibilities and has access to the right insight, expertise and experience on an urgent basis should the need arise. In other cases, the process may require the evaluation, construction and execution of highly complex transactions. You can read more about some of these issues in our feature article on managing through turbulent times in October’s PLC magazine.
Given the increasing importance in a business context of digital assets, technology and data; the increasing complexity of financial and payment flows and the evolving UK policy; as well as the regulatory and competition law environment following Brexit, businesses should not only focus on narrow questions of corporate solvency or debt refinancing but also take account of those wider factors which will likely mean the difference between success and failure.
Hogan Lovells offers market leading practices in those areas, which are complemented by our core offering in corporate finance transactions, restructuring and insolvency. Our footprint of more than 45 offices across the world enables us to give a global perspective to help UK businesses and investors as well as their international counterparts in addressing issues and taking opportunities involving the UK market.
Please contact James Doyle or your usual Hogan Lovells contact if you would like to discuss any of the issues raised above or explore best practice ways of addressing issues raised by the current turbulence.
Authored by Global Head of Corporate & Finance James Doyle.