As the world continues to confront the challenges of COVID-19, it’s clear we’re facing a health crisis with huge financial ramifications. Containment measures have put entire populations into lockdown, creating economic and financial challenges for every company.
Here in Australia, entire industries are effectively shut down. In response, Parliament has delivered the largest economic stimulus in history to enable JobKeeper payments to go to employers from the start of May, keeping many Australians in work and reducing the short-term pain of the crisis.
Preparing for a ‘new normal’
Longer term, no-one is under any illusions. We won’t be returning to business as usual. The way we all live, work and spend is going to be radically reshaped.
At a sector level, any industry reliant on high social interactions – tourism, hospitality, energy and transport – will be the hardest hit. Demand for other services will increase. The growth of the digital economy will accelerate as the need for connectivity and communications, for both business and personal use, rises.
Right now, we recognise that we’re in a period of extreme market stress. But there are signs that we are moving towards a ‘new normal’. Deals are getting done today. Everyone’s experience of the pandemic is different, but I believe some of the recent transactions we’ve been involved in at RBC Capital Markets here in Australia reveal some valuable principles for mobilizing quickly and decisively through this crisis.
Australia's leading pre-paid payment solutions provider EML Payments Ltd completed the acquisition of Irish-based Prepaid Financial Services in a deal valued at AU$263.5 million, after renegotiating the price downward following the COVID-19 outbreak.
The companies signed the deal – originally valued at AU$453.2 million – back in November 2019. But when the pandemic transformed the economic reality of the world, the purchase price was restructured to position the combined businesses with a strong balance sheet and significant cash on hand going forward.
Every action matters
In a crisis, this is what good looks like. Both companies moved decisively in response to urgent new priorities. They modelled the right financial scenarios, determined key exposures, and defined trigger points to stabilize operations, protect employees, operations and cash flow.
Beyond that, these businesses showed a broader ambition than just getting through the crisis intact. They thought about how to win in whatever ‘new normal’ emerges. That takes ambition and imagination.
It also requires swift action. When COVID-19 restrictions impacted the trading and liquidity of G8 Education, Australia’s largest childcare provider moved quickly to leverage Government support measures and working with RBC raised $301million to mitigate disruption, strengthen their balance sheet, and position themselves to pursue potential growth opportunities.
Clearly, in the current climate, some transactions won’t happen. But with focus and commitment, we’re seeing that the right deals can be negotiated and concluded. More encouragingly, we’re also seeing many other transactions proceed exactly as planned.
Multibillion-dollar data centre company NEXTDC launched an AU$672 million institutional placement to accelerate the development of its S3 data centre in Sydney. Demand for third-party data centre services is huge and will continue to grow rapidly in Australia. The S3 centre is NEXTDC’s largest development to date and will deliver more than 20,000m2 of IT space to organisations.
NEXTDC’s ability to focus on growth and prioritise immediate actions that anticipate longer-term strategic opportunities is another great example of the right response to the current crisis.
Similarly, Canberra-based software and services company Citadel Group have just spent AU$198 million acquiring UK-based Wellbeing Software Group, a software solutions provider that manages radiology and maternity patient workflow and data. It’s another acquisition that looks beyond today’s uncertainty to prepare Citadel for what lies ahead, transforming itself into a global healthcare software company.
Adaptive and agile thinking
These are just a few examples from my team’s current pipeline, three different types of deals and transactions that share common values. EML Payments Ltd, NEXTDC and Citadel all had specific, well-articulated value creation ideas, driven by leadership teams with entrepreneurial attitudes and mindsets.
At RBC Capital Markets in Australia, we’re privileged to work with successful business leaders across a wide range of industries. This has given me an insight into some of the behaviours that matter most in today’s climate.
What’s needed right now is a willingness to take risks, bolstered by the ability to rapidly recognise – and seize – opportunities where others just see disruption and chaos.
In many ways, the current circumstances suit the kind of companies we’re working with at RBC Capital Markets, all led by ambitious entrepreneurs who excel at dealing with fast-moving disruption.
In this undetermined future, agility and ambition will be a company’s best assets. As one of the biggest banks in the world, we’re in a great position to support that ambition, in terms of our expertise in investment banking and our own liquidity, capital and strength.
My aim is to remain a pivotal partner for clients who have the vision, drive, tenacity and persistence to seek out opportunities in this uncertain and fast-changing situation.
