COVID-19 is a global humanitarian challenge, with Governments and industries around the world working together to stabilise economies and, more importantly, save lives. Bill Nixon, Managing Partner at Maven, looks at the current situation and its impact on the UK smaller company sector, and highlights some of the practical and financial support available from a plethora of sources at this difficult time.
“Everything will be OK in the end. If it’s not OK then it’s not the end". That famous quote which is thought to have originated from an ancient Indian proverb has a particular resonance in the midst of the COVID-19 pandemic. The UK economy is forecast to experience a 2.6 per cent decline in 2020, or a 5.4% fall if the current pandemic is more protracted than modelled (KPMG), but all problems do eventually pass, and through the persistence and tenacity of the British people working together across all four home nations, the UK economy is expected to begin to recover by the second half of 2021.
These are unprecedented times for our society and financial markets, with no comparable situation in recent history. Businesses in the UK have especially been hit hard, with few likely to emerge unscathed from this period. Recently released data from the BVCA, whose member firms include over 325 UK private equity focussed fund managers, revealed that 69% of its members said that their portfolio companies are experiencing moderate to severe falls in forward orders or cancellations, whilst 46% are experiencing supply-chain issues. Orders have been cancelled, non-essential shops have been forced to temporarily close, many employees are unable to do their jobs, and significant pressures are being felt on cash flow.
In recent weeks the Government has announced a range of emergency measures to help employers and their employees, including paying up to 80% of private sector wages, capped at £2,500 for at least the next three months, and deferring payments such as VAT to help prevent job losses. More recently the Government has proposed a similar solution for the self-employed enabling them to claim a taxable grant for at least the next three months, worth up to 80% of their monthly net earnings averaged over the last three years up to £2,500. To qualify claimants must have trading profits of less than £50,000 per annum and have completed their 2018/19 tax return by 23 April. And further, self assessment income tax payments due in July this year have been delayed through till early 2021, providing essential further cash flow support for the self employed.
Whilst sadly the reality of the COVID-19 outbreak means that it is not business as usual for most smaller companies, other support is available. Since Maven was established in 2009 it has grown to become one of the UK’s most active investors, deploying over £500 million of capital in over 300 businesses. Maven remains steadfast in its support of SMEs across the country and our investment executives based across the country have been working closely with our portfolio companies to assess the current impact on a case by case basis, and help our partners and fellow stakeholders get through this difficult period.
Major economic shocks are, thankfully, infrequent but do happen for a variety of reasons. Many of our investment and portfolio executives have previous experience of supporting and advising businesses through challenging times, such as post 9/11, during the 2008-2009 financial crisis and subsequent oil price crash, and in the ongoing aftermath of Brexit. The Coronavirus, and the traumatic personal and financial impact it is already having on families, may provide the toughest challenge yet for British business, and we are committed to providing whatever support we can over the coming months, to protect investor value, and help kick start the economy as soon as that is possible.
Outside of Maven there are a number of new initiatives which have been introduced to help companies affected by the pandemic. The Chancellor has recently announced that the British Business Bank, for whom Maven manages a number of UK regional debt and equity funds, will oversee the new Coronavirus Business Interruption Loan Scheme (CBILS). This vital new funding is already available and is being delivered through a range of over 40 accredited lenders, with the specific aim of supporting the continued provision of finance to UK businesses experiencing increased costs or cashflow disruption during the COVID-19 outbreak.
Under CBILS the Government will cover the first six months of interest payments, as well as any facility arrangement fees charged by lenders, so eligible businesses will benefit from no upfront costs and lower initial repayments during this critical period.
Whilst Maven, like other investors, will need to be more circumspect with regard to which new companies it supports in the coming months, our long term commitment to entrepreneurialism in the UK is unwavering and our investment teams across the country have at their disposal high levels of liquidity which will continue to be deployed to support innovative, smaller and emerging companies. We continue to actively invest, with three new VCT growth company transactions closing in the second half of March, and a strong pipeline in progress. To the extent we possibly can, it is business as usual.
Our country and people are adapting quickly to this fluid situation and we firmly believe that there will be a substantial and pronounced market recovery once the UK can re-open for business and emerge from the enforced restrictions arising from COVID-19. Whilst the current issues will take both time and capital to resolve, British business has a proud record of strength, resilience, ingenuity and robustness, and that ambition will not be extinguished, even in the most challenging of times. At Maven, we are confident that everything will indeed be OK in the end.