Is your business ready for a rollercoaster ride?

Volatility is is here with us. Stock market indices, S&P, Dow, Nasdaq, CAC, FTSE etc., swing from pessimism, cautious optimism and optimism. The same applies to private companies, households and consumers.

Each swing correlates with propensity to buy, spend or sell on the side of different market players. Is your business ready and geared up for this rollercoaster ride?

Who is willing to pay for an equity position in your business?

No matter how strong the fundamentals of your business are, it is always advisable to get a sense of what the market thinks as well as the value that the market attaches to your business and the industry sector that you play in. Most importantly though, it is particularly critical to obtain some insights about the segment of the market that would have an interest in your business and the sector that you play in and why.

Most family business owners in the lower mid market get to a point where they want to sell or dilute their equity position in their business for one reason or another, but do not know how to go about doing it. Some approach this assignment the same way they would sell their house or property, whilst others get their lawyers or accountants to try and sell their business. One year or 18 months later, and after seeing lots of potential suitors, most of these business owners are still no where close to closing deal, but worse, given the amount of time spent in the market “throwing mud at any wall” and hoping that something will stick somewhere, they have now “commoditised their” asset, and this makes it difficult to generate interest in the business.

Our counsel is as follows:-

    • Speak to the right people early on, this will save you a lot. Selling a business is a specialised skill and you need to the right people. Equally, selling a lower mid market family business with own peculiarities, is a different kettle of fish.
    • You need to target. That requires you to speak to people who understand the market, but more importantly, the strategic buyers or financial buyers who would be interested in your business and why.
    • You need to test the market long before you go to market.

Should you be interested to test the market, please get in touch with us on enquiries@marktomarket.co.za

 

Exogenous shocks, firm position, market reaction.

Strategy 101 exhorts managers to keep tabs of both the proximate and the task environment and to be on the look out for events that may threaten or present opportunities to grow the firm’s operating performance, improve Return on Invested Capital (ROIC) or widen the spread between ROIC and cost of capital. ┬áIn this regard, time, effort and money was not spared. Most managers and owners have a firm grasp of these drivers as well as their broad behavioural patterns or plots and have built their models on this plots. Nothing however, seems to have prepared most to make sense of and deal effectively, at least in the short term, with multiple exogenous shocks (health crisis, economic policy responses to the health crisis combined with technological disruption, environmental and social challenges) either acting in concert, feeding off one another or working parallel one another.

Like most things in life, the COVID-19 induced health crisis and associated policy responses presented some industry sectors, industry groups, sub industries, categories and stocks/firms with tailwinds and others with headwinds. The industrials sector, specifically, the airline sub industry as well as consumer discretionary sector, specifically, casinos and gaming, hotels, resorts and cruise lines and leisure facilities, are examples of the former, whilst health care, consumer staples and some sub industries within communication services are examples of the latter. Firms within these sectors or sub industries are exposed to the same level and intensity of of headwinds or tailwinds, despite this, stock markets assign different opinions and place different bets to firms facing the same headwinds or tailwinds.

To illustrate the point, all casino and gaming firms could not trade due to lock downs instituted in different geographies and post lock-downs, they will be expected to institute some health safety measures and social distancing measures to protect clients and workers.