A new year is usually a time for optimism. Following the tribulations which the economy has endured since March 2020 - a year for some business owners of fighting to remain solvent while exploring the landscape for trading following Brexit - many will be looking to 2022 to be the year of stabilisation and recovery.
Now that the safety net of state support for businesses in the form of the job retention scheme, bounce back and CBILS loans, VAT deferral and rates relief for some sectors has been largely removed, there will no doubt be some businesses facing make or break time.
These businesses may also now have to face sectoral staffing shortages, disrupted supply chains and rising fuel bills; along with either a move to hybrid working or the safe reintegration of teams who have worked from home for almost two years into the office. We may also all have to face yet another wave of new variants and the inevitable business disruption this will bring.
The first half of the year will undoubtedly be crunch time for some businesses who were reliant on the governments’ support to offset the drop in revenues they experienced due to trading restrictions.
Recovery begins when we reach the finish line … and we’re not there yet. A fifth of UK-based SMEs surveyed in summer 2021 predicted that recovery would take 18 months to two years, pushing recovery into late 2022. A further 20% predicted a three year, or longer, timeframe for their recovery.
We live in a region which has shown resilience to economic changes across the centuries; a region of endemic entrepreneurship. And there are entrepreneurs out there now with pent up creative energy ready to release. And, whilst many investors are being conservative with their ventures, this is the time when the big risk takers are making it known that they are on the acquisition trail.
While the vast majority of businesses have been negatively impacted by the pandemic, there are those whose ability to work, and to work with certainty and to work profitably, has not been affected, and indeed, may have prospered. Professional services such as IT firms which suddenly experienced a wave of new business to enable the sudden move to home working for the whole nation are an example of this. Other leisure businesses which pivoted quickly towards offerings for those of us ‘captive’ in our homes, delivering everything to our doors from food to virtual fitness classes, were swift to grab the opportunities in the ‘new normal’.
Some organisations which have found the ‘Covid years’ either tough, or conversely those who have fared well throughout, are seeking opportunities to acquire other businesses as part of a revamped corporate strategy for growth.
Covid has also shown such acquirers that physical location is no longer as significant as it previously was in deals, opening up the dealmaking field further. It has also made us all address our lifestyles and priorities, giving many business owners a new mind set to either create further opportunities or, in some cases, to exit.
Serial dealmakers will be well aware of the importance of due diligence as part of any merger or acquisition. However, a new layer to due diligence will be how the pandemic has affected a target and just how much it was propped up by the government support schemes and what liability remains. Sadly, part of the M&A landscape in the coming months will be increased distressed sales; there may be no shortage of opportunities for the bold and the brave.
There are myriad opportunities for the intrepid, and no more so in the fields of energy transition and the shift from dirty to clean industry. Aberdeen and the North East with the skills and drive born out of decades of the oil and gas industry, is better positioned than most to capitalise on this evolution.
The coming year may also see a slew of small business start-ups. Simply Business reports that almost of a third of those surveyed were considering setting up a ‘side business’ in 2022. The side hustle became one of the success stories of the pandemic, with those starting a business while they continued in employment citing that covid had prompted them to reconsider long term plans, that they had more energy, and they were motivated to make up for lost income. Many of these will certainly become full time enterprises.
We started 2021 with optimism that the vaccines would give us all a route out of the pandemic. However, that light at the end of the tunnel was dimmed by a few obstacles along the way. We enter 2022 with a hope that this is a year of stability and certainty and look forward to a positive dealmaking environment which shapes the region’s future success.
