Beware the Vultures and Save the Super Chicks

As the viral pandemic ravages the economies, so we have started to see the reactions. This has been not just the governments, where we saw some move faster than others. Some, despite previous plans and warnings seemed initially poorly advised- the UK, and some, or rather one, run by idiots (or maybe that is just one bleach touting idiot)- sadly, the USA.

Then we have seen the reactions of the various national populations which generally have been accepting, acquiescent and even obedient, but generally understanding. However, the longer the tight controls are maintained, there will inevitably be an increase in frustration, and increased disobedience and eventually anger unless the politicians and leaders are clear in their reasoning and actions. It has been interesting to see how some politicians have seen their personal popularity rise, like the New Zealand premier, while others fall, like the current tenant of 1600 Pennsylvania Avenue.

It is of course, incredibly difficult, and I can understand the leaders falling back on experts, although it is worth recalling Churchill’s wonderful quote about experts, “They should be on tap, but never on top.”.

So that brings me to the effect on companies. We have seen the desperate tales of businesses that are likely to be doomed. Many will be smaller industries especially in the food and leisure world. Short term cash flow support may help, but if our social patterns are to change, heaving bars and restaurants may become a thing of the past.

However, look at the larger businesses as well. Some will be acting responsibly and only seeking government support where vital, others will be taking this as an opportunity to possibly show again the more unacceptable face of capitalism by running their company into administration to avoid debts and responsibilities and cause economic damage to all of those around them- only then to rise again with the grace of a faux phoenix, as though nothing had happened.

Then again, there will of course be those more substantial companies who will be having to restructure to manage their cash and assets carefully in order to survive. This means in many cases selling off non-core assets. Here then, is an area to watch.

The fact that these ‘non-core’ assets are being sold, does not necessarily mean that they are bad assets, in fact their value may be great, but the parent may need the cash more than the company. So often these can be distressed, or pressured sales being forced at the wrong time to get probably a lower level of cash than they are worth. These are then smaller and often younger businesses no longer needed by the parent.

Welcome to the Super Chicks. Over the next few months, we will see many such fledglings struggling to survive. However here is not the time for sympathy. Many, in areas of economic weakness may never recover, and I especially think of those many retail outlets and restaurants that were over indebted by private equity deal junkies. Such businesses are unlikely to succeed whatever discounted value is offered. However, there will also be many who will become great businesses but are still fledglings and need more feed and capital from a new adoptive and protective parent.

However, here then beware another ornithological financial beast, the Financial Vulture. Now, vultures often get a bad press, whether seen to be just preying on the weak and helpless, as well as not being helped by their appearance of having feathers frankly in the wrong place. Actually, as scavengers and cleaners, they are a key part of the economic savannah. Good vultures can swoop in and pickup discounted assets of weak fledglings and decide whether they are to be just sold off or reinvested. Either way these vulture funds are there to clear the financial landscape and potentially help the next generation to come through.

So, in this post lockdown period (when we get there), we will need to make sure that such beasts are able to help the economy get moving again as quickly as possible. This then brings me back to my recurring mantra of making sure that as many viable capital outlets as possible are made available. In this case, for the UK we must also make sure that this is not just in the hands of the dominant London investment houses and funds, often with eye watering costs, fees and charges. Here again is another reason for the UK to unlock regional investment assets and add them to the list of alternatives for the dynamic Super Chicks to access and help their growth. Also, to ensure those smaller, yet successful businesses are not just lost to distant vulture funds or sold off to foreign buyers, eager to buy up British expertise and development. Something, sadly, we hear all too often throughout the many regions of our country: ‘if only we could have invested in that business and kept it here’.

And finally, now we all know the rules, don’t we? “You can only leave your home with a reasonable excuse, and I think people really need to get educated about that”, so said an Australian policeman, Paul Smith. “People need to look at what is essential.”.

However, shortly after he said that, a man got into a car crash in his district. The driver, in addition to a charge of driving while disqualified, was also given a fine for traveling for a non-essential purpose: he had told the officers he was traveling to see his drug dealer.

That is my daily trip written off then…

Have a good week and please keep safe and well,


 Image source: B. Rich Hedgeye