We are now three weeks into the UK lockdown as a result of COVID-19, and there has been time for mid-market companies to draw up and implement their initial response to the crisis. Many public companies have announced the anticipated impacts of COVID-19 on their business and their short and medium term funding solutions.
Whilst the position of individual companies varies depending on their situation, there are some key themes emerging that are worth considering before deciding on a response to the crisis.
1. Communication with the market is key
Companies that have communicated clearly and early with the market have been well rewarded. Those that have been impacted have opened up discussions with their shareholders and banks regarding future funding options whilst those that have been able to announce that their business has not been heavily affected to date have been rewarded in some cases with substantial share price increases.
2. Dividend cuts have not been heavily penalised
In normal markets, dividend cuts can be harshly treated by shareholders, but in the current environment the market is understanding of the need for cash preservation and the long term benefits that this could bring. Zeus Capital analysis shows that since 10 March, 298 companies have made statements regarding their dividends, and 254 of those have either cut, cancelled or suspended the payment (as at 8th April), illustrating that the ‘new normal’ is to preserve cash at this time.
3. Equity fundraising is happening
In a number of cases, public companies have announced equity fundraisings to provide extra capital to see them through the crisis. Importantly, these fundraisings have often been associated with formal amendments to banking covenants, showing that shareholders are willing to support their stronger portfolio companies but that banks must also play their part in funding solutions.
Zeus Capital’s view is that equity fundraising activity will accelerate over the coming weeks with those companies that are ‘survivors’ in their sector and/or are looking to accelerate growth and take advantage of opportunities created by the crisis being well positioned for funding. There is a risk that fatigue may set into the market as fundraisings increase in number, and we would advise companies considering a fundraise to implement this plan earlier rather than later in order to avoid this.
For advice on responding to COVID-19 as a public company, or to explore public company funding opportunities please contact the team.