Mishcon Academy: Digital Sessions are a series of online events, videos and podcasts looking at the biggest issues faced by businesses and individuals today.
This live session was held on 21 May 2020. The information in the film is correct at the time of recording.
To review the key insights from the event, please see below.
On 21 May 2020, Head of Brands Sally Britton chaired a digital event, alongside a panel of Mishcon de Reya Partners, to discuss the impact of COVID-19 on brand resilience and the steps that businesses can take to improve their position following the removal of the lockdown. Joining Sally for the session were Nadim Meer, a Partner in our Private Equity team, Laura Chandler, a Partner in our Reorganisations practice, Lewis Cohen, a Partner in our Commercial team, and Daniel Avener, head of MDR Brand Management.
Raising funds through new investors
As the UK emerges from lockdown, Nadim considered whether there is appetite in the private equity community for investment post-COVID-19. Historically, the PE community has tended to make its best returns coming out of a crisis so, while funds are currently frozen, investors will be watching the market for the right time. After this short-term squeeze, investors who, pre-COVID-19, were looking to invest in well-managed, scalable businesses with a strong brand propositions, are likely to return to the market once again.
COVID-19 has, however, changed the landscape for investment and it will be vital for businesses to position themselves in the best way to attract investors. Businesses looking for investors will need to be seen as best in class.
Businesses will also need to be able to offer something more than profit, as investors will be attracted to businesses who have proven themselves to be resilient in times of crisis. COVID-19 has further propelled the investment community's shift towards directing funds to impactful businesses, in part because these are perceived as being more resilient than others.
In considering whether to seek investment, the key consideration at this point is timing. Businesses should assess whether the money is needed now, as those who go to market sooner rather than later, will be limiting their options as many investors bide their time. If businesses are looking to raise funds through investors, Nadim suggested it would be better to look to existing investors.
Raising funds through existing channels
Laura addressed what steps directors and shareholders can consider taking in the current climate to make the most of the funding available from existing shareholders. Laura highlighted that shareholder agreements may already set out terms on which further funding may be made available, or, alternatively, directors may consider offering shares to their existing shareholder base.
Laura also stressed that business leaders may be able to use the current pause in normality to analyse which parts of the business are doing well – could these areas be spun out into a separate entity which could attract investment? Directors and shareholders should also be alive to the possibility that some parts of the business will not be fit for purpose and may be disposed of to free up cash.
Likewise, businesses should not shy away from corporate restructuring – this could range from a large-scale overhaul to basic contractual housekeeping. Taking the time now to assess the detail and plan will help to drive a business forward. Effective restructuring will enhance a brand while at all times ensuring that, to those outside, the brand is unchanged and customers and suppliers continue to deal with an unchanged company. Properly executed, taking these steps in the short term will not damage or dilute the brand, rather, the business will benefit from a medium to long term pay off.
Now, more so than after the 2008 crisis, opportunities for businesses may arise. Daniel highlighted that many of the changes brought about by COVID-19 are in fact only accelerations of changes that businesses, particularly retailers, were already preparing for. The questions businesses were asking themselves – about store numbers, online presence and new product categories - are now more urgent but the answers may, in some cases, be clearer.
Those businesses considering geographic expansion will be aware that opportunities lie in China, Korea and more widely across Asia but should consider whether they have the brand strength to reach outside of the UK. Licensing and franchising present many benefits for businesses looking to grow while protecting a brand and not adding overheads. The key to the success of these models will be in relying on an expert third party who is the perfect fit for that brand, product and territory.
Supply Chain Negotiations
If they have not done so already, businesses will need to reassess their supply chain in light of COVID-19. Any assessment will need to take into account the specific circumstances and locality of that supply partner. The risks of not addressing any supply chain issues identified should not be ignored.
Lewis gave transparency in businesses and, in particular, supply chains, as an example of an almost certain feature of the post-COVID-19 world. In order to win trust in their brand, businesses are now required to focus on the effect of their behaviours on society and to ensure they remain true to their brand values.
As has been seen in the media, customers and investors will take note of businesses which act insensitively in their treatment of suppliers, but these considerations must be carefully balanced against a business' need for immediate survival. Businesses may also be faced with difficult decisions about dealing with excess stock in a landscape where discounting or destroying stock carry weighty reputational risks. Key to negotiations with any party in the supply chain will be the detail of the contract in place.
Businesses will need to be creative in how they re-emerge in the post-COVID-19 world, and this may involve moving away from a heavy reliance on traditional suppliers in China and Vietnam, and considering whether customers in the UK will be able to replace the gap left by Asian and Middle Eastern customers no longer visiting the UK.
While COVID-19 has undoubtedly changed the business landscape, the fundamentals for brands continue to apply so that businesses should be asking the same questions of themselves as they would when making assessments normally. A marked difference, post-COVID-19, is likely to be the stress placed on brand purpose and the now crucial importance of a brand's digital presence in all aspects of its business.