Raising money in the COVID-19 environment
In the expected rush to raise money during this pandemic, Boards needs to get their communications right – especially if their fundraising necessitates a break in convention around pre-emption rights.
The rapid action of Powerscourt client SSP to raise £216 million in fresh equity from shareholders shows how companies that act decisively, while making a very clear case for their approach, can succeed. SSP’s unusual approach could be seen as a case study in quick thinking, tenacity, and management foresight.
Cash businesses need cash. And lenders are unlikely to dip into their pockets unless shareholders do the same. The standard modus operandi would have been a rights issue. But these are lengthy and expensive and may be inimical to the urgent needs of UK/Irish PLCs.
Although it took place in what already seems like the bygone age, TalkTalk triggered huge protests when it ignored pre-emption rights in a £200m raising two years ago. The same could easily happen over the coming months, no matter the differing economic circumstances. It is worth noting the Pre-Emption Group has now recommended “investors, on a case-by-case basis, consider supporting issuances by companies of up to 20% of their issued share capital on a temporary basis”.
We know the traditional rights issue isn’t an option for many. Despite the PEG’s temporary softening, companies will need to work very hard to explain precisely why they are not pursuing the rights offer, noting the new approach does indeed flout the city rule that all shareholders are treated equally in large equity capital raisings.
And this is where effective communications will prove so crucial.
Make the case clearly. Explain the need. Ask for no more and no less than you need. Demonstrate you are pulling every possible lever, while doing all you can for your colleagues. Explain how the new money will be used and how this plays to the longer term investment case. And make sure the pain is spread. Executive pay cuts? No – the Board and senior management need to join in. A united company is a strong company.
When this nightmare ends – and it will – companies that maintained a clear, consistent, and frequent line of communication with all their stakeholders will come out on top. Those that have a clear investment case, and clear pathway to capitalise on the recovery are the ones that will succeed.