The COVID-19 pandemic has forced a new way of life on society, and on the way we all do business. The short-term focus of state and federal governments has rightly been the health and well-being of the Australian community, resulting in the implementation of significant social and economic control measures. Many businesses have been forced into hibernation mode by mandatory closures, reduced customer activity, and disruption to supply chains. In many cases, these businesses are increasingly reliant on government assistance to support them through the hibernation period.
With the news that government controls have resulted in a sharp decline in the spread of the COVID-19 virus in Australia, state and federal governments are tentatively considering a staged easing of lockdown restrictions.
In the current environment, it is imperative that boards and directors immediately consider their strategic plan for re-emergence, and how such a plan will be structured, funded, and executed.
Re-emergence – what does it look like and is your business ready to make a successful return?
Following recent experience advising a range of businesses on their strategy during the COVID-19 pandemic, we have considered the most pressing issues and considerations for businesses. In formulating a re-emergence strategy, these issues need to be addressed to enable the best chance of a successful re-emergence, and in turn, the best opportunity for future prosperity. Our view on key re-emergence issues and considerations are discussed below:
1. Re-emergence Strategy
- Do you have one?
- Is it realistic and achievable?
- What is the plan to ensure proper implementation?
- Does it require funding?
- Does the plan include a re-hibernation strategy if another outbreak occurs?
2. Financial Forecasting
- Does your cash flow forecast reflect the funding need and timing requirements?
- Does the forecast align to the re-emergence strategy being proposed?
- Is your forecast accurate and realistic?
- Does the forecast model help you understand your funding needs through the re-emergence period?
- Do you have a process to update the model as material changes occur?
3. Working Capital & Funding
Having survived the downtime – do you have sufficient working capital to fund your business in the re-emergence phase? Access to working capital will be essential for the following:
- Inventory purchases, particularly where inventory levels have been reduced due to an increase in sales during the lockdown phase (e.g., online retailers or specialist products), and/or a decrease in supply due to supply chain disruption.
- Mobilisation of contingent workforce.
- Payment of deferred obligations (rent, tax, and bank loans etc.)
- Transitioning out of government assistance initiatives such as JobKeeper
- Costs to reinvigorate commercial offering/brand, or to re-engage with clients.
- Capital expenditure, particularly where the business offering may need to change in line with the new environment.
4. Sources of Funding
- Review of funding options including current financier, alternative lenders, equity investment, or through working capital improvement measures.
- Many options exist for alternative debt and equity funding solutions including inventory finance, sale and leaseback of assets, debtor finance, special situation funds, private equity, and government-backed assistance funding.
- New temporary Foreign Investment Review Board (FIRB) requirements mean all foreign investment is subject to FIRB review – how long will this process take if foreign funding is required urgently?
Is your workforce ready to take up the challenge?
- How do you re-engage with employees to ensure that they understand the strategic imperatives of the re-emergence plan?
- What conditions do your employees expect in the new world and how can you meet expectations to attract and retain quality staff?
- How can the physical and mental well-being of employees be adequately supported?
- What are staff expectations in relation to workplace flexibility? Are there further opportunities to leverage the ability to work from home?
- How can we empower our people to make the best decisions for our business?
- Do the expectations of key stakeholders align with your re-emergence strategy?
- Does the strategy effectively deal with the payment of deferred obligations (rent, tax, bank loans, etc.)?
- How do you ensure clear communication with key stakeholders as the business moves into the new world?
- Does your commercial offering/concept require an overhaul?
- How do your operations meet the requirements of changing restrictions?
- Reviewing and reengaging with suppliers, changes to workplace practices, and the ability for employees to travel are all important factors to plan for when restarting operations.
- Businesses should be proactive in reviewing their supply chain now. Where are our supply chain risks and how can they be minimised? Should we be looking at local or alternative suppliers?
- Should M&A activity be considered to reduce the strain caused by an underperforming division, or to refocus the business on its core activities, or strengthen the business by strategically acquiring a vulnerable competitor?
8. Optimization and Use of Technology
- Are there cost savings or efficiency improvements which have been identified during the work from home period? I.e., reduction of premises overheads through telecommuting.
- Businesses should use lessons learned from the lockdown to further incorporate technology into their operations which will improve efficiency and workplace flexibility.
- Technology may also be used to improve employee wellbeing.
How we can help
Ankura has experience advising boards and management on navigating their businesses through COVID-19 and planning for emergence after the lockdown. Taking early and decisive action and dealing with issues proactively increases optionality for the business.
1. Financial Forecasting and Modelling
Preparing, reviewing, and assessing the robustness of your financial models:
- Understanding funding requirements in restarting your business – is external funding required?
- Assessment of risk vs reward in respect of commercial opportunities.
- A robust model is crucial when approaching lenders, sponsors, and other financiers.
2. Debt & Capital Structuring
Understanding the risks and opportunities associated with your debt and capital structure:
- Optimising your company’s capital structure to seize opportunities in the new world.
- Early assessment allows for increased optionality
- Maintaining relationships with lenders and other key stakeholders.
- Identifying alternative sources of funding and assisting in the process of obtaining it.
3. Business Review and Planning
Thorough reviews and planning enable informed decision making:
- Understanding key challenges or opportunities facing individual business units.
- Early identification and assessment of operational, supply chain and people issues, and how best to address them.
- Stakeholder management considerations when restarting your business.
- Options analysis and contingency planning for non-core or underperforming business units allows for informed decision making
4. M&A Services
Identification of M&A opportunities:
- Can divesting a non-core or underperforming division boost the valuation of the whole?
- Equally, are there buying opportunities in the market to increase market share?
5. Safe Harbour Advisory
Using the Safe Harbour provisions to enable a turnaround plan to be implemented:
- Safe Harbour provisions under the Corporations Act give Directors breathing space to assess options and implement a restructuring plan for non-performing businesses.
- The process allows the formulation of a well-documented restructuring plan and time to execute the plan.
6. Formal Restructuring
Formal insolvency appointments as a contingency option:
- After all avenues have been explored, and when considering all contingencies, formal insolvency appointments remain a necessary option for businesses in distress.
- Formal insolvency appointments may be utilised as part of a broader restructuring strategy to enable the business to reemerge stronger and with less baggage from the crisis.
© Copyright 2020. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals.