What can companies do in these volatile financial markets?

By Rozi Morris

Since Russia’s invasion of Ukraine earlier this year, there been a universal uncertainty across the global financial markets. This has resulted in an investor flight away from risk – hitting technology, biotech and growth companies particularly hard. But there are some positive actions that companies can take to help weather this financial storm and emerge better prepared and positioned for the future.

The situation

Recent interest rate rises have resulted in further selloffs and a general negativity around shares as an investment. Supply chain disruption, workforce discontent and blue-chip companies cutting profit forecasts alongside higher wage and energy costs have compounded negativity in the markets.

Fund managers are currently focused on having the resources to cover rising demand for redemptions, rather than investing in innovative businesses. This then leads to fewer IPOs, fundraises and M&A – leaving companies with less capital to invest in their businesses, for growth and recruitment.

Is it all doom and gloom?

Those of us old enough to remember have seen and weathered these financial crises before. The UK financial markets can and will recover in time – although the market conditions are clearly not going to improve in the short term.

But a few deals are happening and the pipeline and appetite of UK businesses in listing as a public company is still there. Companies looking for exits from their current funding/ownership structures still need the public markets as an option.

One positive is that those that deals and listings that do get away will be for stronger, better-quality businesses as has sometimes been the case in the past. Lower quality, speculative listings have been culled for the foreseeable future, which can only be good for the reputation of the UK markets.

Also, those companies who are preparing now to list will have a longer runway, be better prepared and potentially further developed when they do get to market – hopefully then performing better and driving positive market sentiment.

And remaining private for longer, exploring dual-track options and private bridging financing are at least options for many of those companies who have not been able to list on the financial markets this year, with the level of private capital available higher than ever before.

What can companies do to help themselves?

Companies thinking of using the financial markets should maintain as flexible an approach as possible and use this “quieter” time well, even if any deal is potentially 12-18 months away.

Getting the groundwork done so that a company is prepared and well positioned for when the markets do open up again will enable it to take advantage of opportunities quickly when they do arise – whether through public markets or private capital.

Being able to complete this work in slower time, without the pressure of a deal timetable can also make it a much easier, more thorough and more productive experience which will pay off further down the line.

Some activities that companies might consider focusing in order to help it communicate and differentiate itself to investors and other key audiences, include:

• Building and stress-testing a strong equity story
• Growing an industry and market profile
• Reviewing online presence – website and social media
• Assessing need for public policy engagement
• Updating key collateral – investor presentation, factsheets, online content
• Reviewing its share register and investor engagement approach
• Developing a genuine ESG strategy

What can the UK financial markets do?

Similarly, the UK’s financial markets can use this time as an opportunity for positioning and preparation for when more activity does return.

As one of the longest established stock exchanges in the world, the London Stock Exchange can continue its work on corporate governance, educating on the importance of good regulation and a quality listing – both to businesses and investors in the UK and internationally. Maintaining the emphasis on regulatory standards to maintain quality within the market, and not bowing to pressure to attract the latest “big thing”, or financial trend. Now is a great time to inform and engage with private and crossover investors and private growth companies to encourage early awareness of public listing options.

The UK Government can also help support growth company listings and their investors by extending EIS (the Enterprise Investment Scheme). The current arrangement for this vital investment incentive is due to expire next year. This and other tax efficient schemes are key to encouraging investment in innovative companies. A focus on supporting the next generation of UK businesses, rather than chasing individual flagship IPOs could reap benefits in the future.

Helping companies to navigate change

At Instinctif, we are experts in helping our clients communicate and differentiate themselves in a rapidly changing and noisy world. Our experienced Capital Markets team can help your business achieve any or all of the activities above and more beyond.

If you’d like to find out more, see https://instinctif.com/ or get in touch: tellmemore@instinctif.com