In last year’s Winter eNewsletter I looked at what Investors are looking for (see “Selling the sizzle, not the sausage!” - What are investors looking for?).  A lot has changed since then following the collapse of the banking sector and stock markets and clearly it isn’t enough at the moment to just have some sizzle to sell.  I am regularly now being asked if investors are still doing deals and whether the cash is still there. 

The simple answer is that there is more limited cash than before and although there are deals still being done, in most cases these are not the deals investors would like to be doing. The vast majority of these deals involve companies that investors have already invested in, which are now struggling with their sales and urgently need emergency refinancing to keep them afloat.  Even these deals are no longer a foregone conclusion and any company that is selling to the financial, retailing or property sectors may have a difficult time convincing their investors that dropped sales can be regained within a reasonable period of time and that a reasonable ROI is possible.  Many investors are also holding off on new deals until the markets start to bounce back for fear of investing on a valuation that proves to be unsustainable.          

This all sounds terribly gloomy and there is no getting away from this.  However, there are also some investors who are viewing these difficult times as a real opportunity to pick up bargains and indeed there are sure to be investors who will make their fortunes from deals done in the next twelve to fourteen months.  There will also be numerous entrepreneurs that will start up their businesses and become the millionaires of tomorrow, provided that is they can manage this without obtaining bank support. 

There are going to be a large number of ripe deals but many of these opportunities require bank support and will be missed if the banks don’t start opening their doors again for business.  With the Government taking controlling stakes in key banking institutions such as Royal Bank of Scotland, Halifax Bank of Scotland and Lloyds TSB, it may fall on the Government to twist the arms of the banks to kick start the revival.  The Government may even have to resort to providing similar loan guarantee packages for businesses similar to those announced earlier this month to help guarantee mortgage interest payments for a two year period.  Alistair Darling has taken the extraordinary step of promising that no retail depositor in London Scottish will lose a penny and that all depositors will get all their money back.  This is unprecedented and it may well be that similar action for small company loans is perhaps not as far away as we think.  Let’s hope so.  It does however beg the question what the true cost to the taxpayer is going to be.

It is important that we don’t all act glum and wait for the revival to happen on its own.  MBM Commercial in conjunction with the Management School of the University of Edinburgh are hosting a debate on 11 February 2009 on the topic of ‘Maximising the benefits of public and private investment in Scotland’ and we hope you can join us to help debate these important issues.  We hope that by discussing these issues, with the help of some key figures in the Scottish investment scene to stimulate the debate, we can all help to do our best to help stimulate deals and kick start the revival.  If you would like to join us then please email jointhedebate@mbmcommercial.co.uk for more details.  

For further information please contact Stuart Hendry on 0131 226 8203
or email stuart.hendry@mbmcommercial.co.uk