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Facing Australia's first recession in 30 years, Australian businesses are attempting to steer a course not only for survival but for the growth needed to be a viable long term. But alongside uncertainty comes opportunity. Our new report, prepared in partnership with Acuris, explores the key steps for companies and investors to take advantage of the opportunities – and decisive, informed and proactive action is critical.
As the economic impact of COVID-19 continues to affect Australian businesses across all industries, a range of temporary government measures may be delaying inevitable restructurings and insolvencies.
Through temporary incentives and regulatory changes, distressed companies have been granted additional time to set themselves up to be an attractive prospect for capital investment.
It's important that the time is used wisely, with careful consideration given to potential restructuring measures well before lending covenant breaches occur or repayments can't be met.
While Australia’s big four banks have provided unprecedented support to most borrowers, they will not be able to support the market on their own. This is where non bank lenders and other alternative capital providers will play an important role.
“In order to receive funding, companies will need to demonstrate that they have a viable business plan going forward, and that future growth looks realistic and promising. Businesses may need to be recalibrated to achieve that.”
There are critical actions that companies and funds can take now that will prepare them for opportunities and challenges that the future may bring – even if the precise nature of them is unknown.
Tourism and leisure
While the tourism and leisure industry has been hit particularly hard, the sector is attractive for the long term and will be held in high regard by investors and debt funds. Domestic tourism will pick up as state borders reopen and over the next few years, foreign tourists will eventually return.
Energy & resources
Uncertainty and lower energy demand, challenging oil and coal prices and the increasing focus on decarbonisation offers potential for distressed assets, consolidation and restructures – particularly for oil and gas and coal companies.
Education
Financial distress is creating short-term opportunities in higher education, specifically among private providers of education who cater to overseas students.
Real Estate
There has been an influx of capital partnering in all property sectors (including traditional financiers transitioning into equity providers) to diversify a landowner/developer’s risk.
Infrastructure
State governments plan to fast track infrastructure projects as a means of stimulating the COVID-19 economy. A depressed local contracting market may offer opportunities for tier 1 contractors or other local participants to purchase struggling sub-contractors and services businesses.
Financial services
Banks have ramped up their expected credit loss provisions in anticipation of greater distressed companies as stimulus packages expire. Smaller ADIs, credit unions and mutuals may come under pressure due to current economic conditions, which may result in consolidations.
Ron Forster specialises in mergers and acquisitions, capital raising, corporate restructuring and is a trusted adviser to corporate boards. He advises on a wide range of public and private company contested and uncontested takeovers, including those involving managed investment schemes
© 2020 MinterEllison
