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Whilst on his current world wide PR tour promoting his latest airline venture in Australia Richard Branson took time out to inject a much needed dose of optimism into the current doom and gloom. If he could bottle it under the Virgin brand, which I wouldn’t put past him, he would be significantly richer than he already is.
It was certainly refreshing to hear an individual such as him make proclamations that the current environment is a fantastic opportunity for a new generation of entrepreneurs: “Fortunes are made out of recessions. A lot of entrepreneurs get going in the economic depths because the barriers to entry are lower,” he said.
There is no doubt that recessions are partly influenced by public sentiment and a feeling that the media is talking us further in to a recession. By the same token, perhaps we can also start to talk ourselves out of it. Clearly, this is an overly simplistic view of a very deep and complex crisis, but we are where we are and it is now up to every one of us to play our part in building a platform for future prosperity. Now is the time to weed out those poorly run companies and risky business practices that prospered in the good times, as Mr Branson says “If you are the best in your field, then don’t cut back on quality because good companies always survive”
With private equity deals and corporate M&A activity almost non-existent surely now is the time for investors and portfolio managers to be focused on making their current investments the very best they can be. They will probably not deliver the type of returns of recent times, but preserving existing value and structuring businesses to weather the current storm is surely the new name of the game. Instead of mourning the death of big, highly leveraged deals, it must focus on managing existing portfolio companies, even if investors would prefer them to cut their losses.
According to a recent article in the Financial Times:
http://www.ft.com/cms/s/0/ae9a607c-f3cf-11dd-9c4b-0000779fd2ac.html
‘Private equity must diversify so that it can benefit from the opportunities that the recession will produce. These may come from refinancing companies now that banks are reluctant to lend, and from engaging with governments that wish to harness private equity’s rare combination of having cash, more than $400bn to spend, and being willing to invest.
Making the case for involving private equity means a humbler tone too. Owning up to the folly of bingeing on cheap debt is a good start. It would also help to admit that the business model has yet to be thoroughly tested in a downturn: managing a buy-out sustainably now may need different skills from those that generate cash in good times.’
This is where is I believe the requirement for experienced hands on commercial interim managers and brave entrepreneurs and investors is of most relevance. Clearly, the skills required in recent times may now not suit the current climate as businesses have to focus on cash flow forecasts, working capital, protecting current value, restructuring the business to reduce unnecessary cost without weakening the core of the business. These skills will be in high demand in the coming months and the solution driven propositions of interim providers and interim managers will be well received.
Now is the time to focus on the job in hand and look to the future where opportunity will beckon once more. Endless postmortems of the current meltdown and constant obituaries of the ‘masters of the universe’ will get us no where. History tells us we have been here many times before and we have managed to recover each and every time. Now is no different; the talent, entrepreneurial and ‘blitz’ spirit that has always existed in the UK will see us through and the sun will shine once more. Doug Baird is Managing Director and Head of Private Equity Practice at Interim Partners.
