The activities for family businesses increased during the corona crisis
Increased? That's remarkable, and this in a period in which the activities of family businesses declined and M&A activities plunged worldwide. How is this possible? Vincent explains: "In this crisis, we see the confirmation that we act as a real trusted advisor for our clients in the long run, and therefore also under any circumstances. Our reputation is one of confidentiality, integrity, independence and professionalism. We are close to our clients, and we are flexible and financially stable. These values are even more important in times of unforeseen circumstances or when one is confronted with certain high impact events. The pandemic led to these unforeseen circumstances; while Degroof Petercam provided for trusted support. We are not only being consulted for ad-hoc Corporate Finance advice but even more so as sparring partners to help define the company's strategy for the future.
Consequently, there is more of a recurring element in our work than one another would expect. Clients do not regard us as consultants or project managers, and we are not selling them any specific products. With our expertise, many owners-entrepreneurs regarded us more as 'travel companions'. They know that our advice is objective, that we have an independent view, and that what we discuss remains confidential. So, it provides the necessary assurance to discuss matters freely. And when the company comes to take critical strategic decisions, we provide tailored solutions. Vincent Jamaer realises that it is privileged to be so close to entrepreneurs.
He concludes: "During more difficult times, it is our sincere intention to help our loyal partners (as this is how we view our clients) navigate these rough seas and define and execute their long-term strategy. That many family businesses also call on us today, strengthens us in our ambition to serve them even better."
The work of an investment banker after corona
What about the period after corona? New times? What effect is the pandemic having on the field in which you work? Vincent Jamaer sheds light upon the many questions. He continues: "In the period after corona, a new 'normal' could still probably arise about cross-border mergers and acquisitions. If a de-globalisation trend should unfold, we expect that companies will want to restructure their supply chains with a focus on domestic purchases. A playing field will thus arise in which transactions could be triggered faster.
On the one hand, there will be companies whose performance will have lost its lustre due to the impact of Covid-19. A climate with weaker competitors always offers the opportunity for consolidation by more powerful market players. In this context, opportunities will arise for potential buyers. On the other hand, many entrepreneurs take the time - when their companies are closed, or their business activities have declined - to re-examine their business and their future strategy. They often do that in combination with in-depth personal reflections during a lockdown on health, family, work-life balance, succession, etc.
In our experience, this often leads to a more open attitude towards the possibility of external shareholders and selling the company ultimately." "And what about the M&A activities?" They will most likely pick up in the second half of the year. For companies with permanent restarting problems, our debt advisory and capital restructuring services will continue to be relevant to create the necessary liquidity. Although, indeed, family businesses generally score well on resilience.
M&A activities and valuation developments
Vincent Jamaer believes that M&A activities may pick up in the second half of the year, but what about valuation developments. An essential question for the Executive Director. He clarifies: "It is undoubtedly still early days to make any firm predictions about this. Many factors influence valuations. That the upward trend in the past years, with high valuations for nearly every company, will not continue unabated is understandable.
However, we think that valuation levels between companies will start to vary more, given the significant differences that we now see between companies. For instance, the corona situation exposed the weaknesses of the business operations of some companies and/or their sector. Therefore, it is likely that this will hurt their valuations firmly and rightly so. However, other companies used their knowledge and expertise to demonstrate their flexibility and/or creativity and were able to capitalise on the changed circumstances and make steady progress financially. It that case, it would be bizarre to revise the valuation estimates downward. Even when there is a one-off negative impact on the financial results due to Covid-19, it's probably regarded as exceptional. Therefore the valuation does not have to implode.
Apart from the company, the economic climate will also play a decisive role. The expectation that both consumption and investment levels will remain low - as long as there is still uncertainty - can also affect the sentiment. However, due to the monetary policy in recent years, there is still a lot of liquidity in the market. Parties such as Private Equity funds continue to look for opportunities to put this money to work and by doing so also support valuations. However, an important question remains regarding how banks will deal with new funding requirements of potential buyers to finance acquisitions. Since this also has an essential impact on the valuation aspect."
Selling your company before or during the corona period
Do you wish to sell your company? Before or during the corona period? Vincent advises: "The Covid-19 situation has, understandably, led to worry and anxiety among many, and that often has a paralysing effect. However, when you are considering selling your company, it is never too early to start preparing for this. Such a preparatory phase can prove to be very valuable. It may not only provide added value financially, but thorough preparation will also lay the groundwork for deal certainty and a less time-consuming acquisition process.
Like running a business, it is critical to think ahead and look for the future. Just focusing on the pandemic seems not the best thing to do. Together with a large number of family business entrepreneurs, we are also using this period to prepare the company for the future. Allowing external parties to become shareholders in family businesses is usually prompted by succession issues, personal wishes of the shareholders or strategic considerations, and these have not changed as a result of the corona crisis.
Consequently, we consider it more logical in those cases to focus on analysis and preparation than to postpone the whole preparation. That the preparatory process would then take longer is not a problem whatsoever. After all, we are in it for the long term."