Now is the time to rebuild equity

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James MacLeay is right; the benefit of doing an exit deal soon is likely to be substantial for many business owners.  But there will be those with longer horizons, and no immediate wish to exit, who should also be thinking about private equity.

Loads of businesses (if not all) have tapped the Government’s COVID-19 debt credit lines – £80 billion, it is said at 5 times the average borrowing rate.  But this debt remains, as a debt.  So, what to do to repair your balance sheet? The answer is the timeless one – rebuild your equity.

Public companies can tap the public equity markets.  And private companies need to tap the private equity market.

Also, as the economic cloud of COVID lifts, as it assuredly will, businesses will need to invest – not only to repay the COVID debt.  Their borrowing capacity will be tapped out.  Private equity is an answer.

As Warren Buffett (I am sure) once (probably) said, the best time to invest is in the depths of a recession.

Contrarian investing has a long track record.  So, here are two real quotes from the Sage of Omaha.

  • Firstly, “…you pay a very high price… for a cheery consensus” – that is, if everyone agrees with you, then it’s probably not a great investment decision.
  • Secondly, “…be fearful when others are greedy, and greedy when others are fearful.”

Now could be the right time for business owners to look for external equity investment to make growth happen; to be “greedy”, to steal from the Sage.