Companies pivot towards raising cash as virus crisis starts to ease

UK listed companies are raising more cash to fund growth plans as the coronavirus crisis starts to ease, with 63% of fundraisers earmarked for this purpose last month (£2.51bn) up from 16% in April (£427m), says Pinsent Masons, the multinational law firm.

Pinsent Masons says as the UK starts to emerge from the coronavirus crisis, companies are starting to identify new growth opportunities. For example, this may include acquiring rivals or key assets at discounted prices or expanding production capacity to capture greater market share from struggling competitors.

Julian Stanier, Partner at Pinsent Masons said,“A growing number of companies are raising funds now to ensure they have cash to act fast when growth opportunities arise.

“There is still a disconnect in terms of valuation ie what a buyer will pay versus the price at which a seller will sell but, as the market stabilises, opportunities will prove too enticing for both sides. Those with cash in hand ready to go will be the early birds that get the worms. ”

Recent examples of UK listed companies raising funds to pursue growth plans include:

• Housebuilder and developer Taylor Wimpey raised £522m in June which it plans to use to build up its land bank
• Online grocery retailer Ocado raised £657m in June which it plans to use to increase capacity to meet growing demand and invest in its UK distribution centres
• Online fashion retailer BooHoo raised £198m in May which it plans to use to take advantage of a growing number of M&A opportunities in the fashion industry. The firm recently acquired fashion brands Oasis and Warehouse

Primary Health Properties also announced a £120m fundraise on July 9 which will be used to fund continued portfolio growth through acquisition and forward funded developments, and to finance asset management projects.

At the same time, the value of fundraises being used to strengthen balance sheets and reduce debt is falling, at 37% of all fundraises in June compared to 84% in April. £1.45bn was raised to reduce debt in June, down 39% from £2.27bn in April (see graph below).

Stanier added, “The last month has seen a huge shift in the rationale for companies raising funds. In the early stages of the pandemic, for most companies tapping investors, all that mattered was strengthening balance sheets and survival but now we are seeing a swing back to raising funds for growth.”

“Larger market players who have ridden out the last few months may now be able to acquire smaller rivals at attractive valuations. There has also been a thinning of the competition in certain sectors, such as retail, as companies scale back operations to conserve cash or fall into administration, creating opportunities for some to expand.”

A total of £13.65bn has been raised by UK listed companies since April 1 2020, with 27% being raised to pursue growth (£3.75bn) and 73% to reduce debt (£9.90bn).