Turning recession into a time of opportunity
March 7, 2024
The Office for National Statistics has finally put an end to speculation and confirmed that the UK was in a technical recession in the second half of 2023. Forecasts for a recovery are muted, with the EY Item Club and the IMF predicting growth in 2024 of 0.9% and 0.6% respectively.
Corporate insolvencies hit an all time high of 26,595 in 2023 and have continued to climb in January 2024 as more and more Directors decide to call it a day and put their companies into Creditor’s Voluntary Liquidation (CVL).
It’s a tough commercial environment out there and a time for caution and heightened risk awareness, but that doesn’t mean that there won’t be opportunities to be grasped this year. Even in the hardest hit industries, like hospitality and retail, there will be opportunities for incoming business owners to turnround struggling businesses or new market gaps to be exploited.
There are two sectors in particular that stand out as offering opportunities.
Technology & related consultancy
The biggest ever daily rise in the stock market value last month of the chip maker, Nvidia shows what the AI revolution can create by way of rampant growth and surging profitability.
What it has done is to generate a huge new market for software development and the customisation of basic AI models, but over and above this there is an entire commercial world that knows it needs to embrace this strange and scary world but is desperately seeking advice about what to do, how to do it and how much to invest. Some will remember the Y2K phenomenon at the turn of the last millennium and the consultancy bonanza it created.
Travel sector
As we came out of the pandemic and looked to travel and holiday once more, 2023 became an extraordinarily good year for travel and tourism businesses. Airlines, hotels, tour operators and travel agents working in the leisure travel space all profited and this trend seems to be continuing in 2024.
Travel businesses will need extra working capital from new investors, some will over trade and need rescuing, while the owners of others will see this as the year to head for the exit by putting their businesses on the market.
Overcoming labour force issues
The list of sectors struggling with labour and skill shortages and rocketing pay rates is long, most notably construction, hospitality, logistics and manufacturing, but many others too. Another aspect of AI and other technology advances is their potential use to transform labour-intensive businesses. This is not a cheap exercise and one perhaps better attempted by experienced and well-funded management teams bringing fresh eyes to the task.
Increased M&A opportunities
In every industry, there will be mergers to be made and deals to be done to secure jobs and re-invigorate companies under new ownership. Getting the best results from these deals is best achieved with expert guidance, which will set you up well for the future.
Due diligence
Grasping these opportunities successfully means giving top priority to high class and thorough due diligence as part of the acquisition process. Good deals are not just about price, but knowing exactly what is being bought and the downside risks, as well as the potential upside gains.
Funding
Too often, putting adequate funding in place for expansion lags behind the headlong pursuit of the deal. Equally problematical is the tendency to focus on meeting the capital cost (the consideration) while glossing over the reality that greater activity levels require extra working capital to support higher debtor and inventory levels, as well as the cost of additional direct and support staff.
Funding needs to be flexible. Acquisitions and their financing requirements very rarely turn out as the buyer anticipated at the start.
Having an expert in your corner
Some businesses have dedicated M&A or corporate development experience and resource, but they are very much in the minority. For the majority of executives, there will be limited bandwidth available for approaching business development project while also navigating these testing economic times.
Using independent experts is an investment in these situations. They will bring new eyes to growth plans, expertise in finding potential deals and evaluating them, negotiating the price and the terms and then, most importantly, getting transactions over the finishing line and with the best terms.
If you are seeking professional advice for your business, Opus is here to help. You can speak to one of our Partners who can discuss options with you. We have offices nationwide and by contacting us on 020 3326 6454, you will be able to get immediate assistance from our Partner-led team.