19.08.20

Seize advantage in a time of crisis

Tom Mathews

These are terrible times. My heart goes out to all of those who have suffered from the COVID-19 pandemic that is sweeping across the planet.

A large part of the world is on lockdown, imposing significant limitations to our daily routines and the ability to operate our businesses efficiently. The coronavirus pandemic threatens the survival of the global economy, affecting every facet of business, from major airlines to self employed individuals.

But, as always, with great economic shifts come opportunities. Partnering with the right growth investor can help business owners not only navigate these challenging times but seize advantage. Similarly, backing the right growth investor can also help investors accelerate returns following a crisis.

  1. Business owners – investing in a time of crisis

Many businesses stop investing during a time of economic crisis to focus on operational matters and potentially even look to sell non-core assets to shore up liquidity. However, this could prove to be the wrong strategy.

In 2019, a McKinsey study demonstrated that resilient companies (those that most successfully weathered the 2008 downturn) moved faster to create balance-sheet flexibility than their peers, and then accelerated faster as economic conditions showed signs of recovery.

As the current crisis evolves, with uncertain timelines and an unclear path to recovery, business leaders are responding on multiple fronts simultaneously—working to safeguard their employees and customers and to understand significant volatility in demand, supply and cost.

To support their businesses in the short term—and, ultimately, enable a recovery in the long term—organizations will need greater operational and financial flexibility. That will mean looking for opportunities both to bolster cash reserves and to be ready to invest nimbly for the future.

This requirement is leading many business owners to consider taking on external investment. Partnering with an experienced growth investor can provide business owners with the capital and expertise to flourish in these challenging time by:

  • Using investment to grow market share as economies reopen
  • Acquiring less stable competitors at good terms
  • Investing in new products and services to capitalise on changes in client behaviour.

More than ever, a partnership with an experienced growth investor like Pemba could be a fantastic opportunity for SME owners to navigate this period of uncertainty and capitalise on the growth opportunities on the other side.

2. Investors – accelerating returns following a crisis

Growth investors can perform especially strongly in the years following an economic crisis. History supports this theory – fund vintage performance is best in the one to two years following a crisis.

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Source: Cambridge Associates – 30 September 2019

However, investing in a post-financial crisis period is never simple. The atmosphere of opportunity compels some investors to put capital to work, albeit in the wrong areas.

Selecting the right growth investor is therefore key. Picking the wrong manager in the wrong geography or with the wrong sector focus can prove costly, particularly if they may make concentrated bets in the wrong market segments and miss the market opportunity. Backing an experienced growth investor that has successfully invested through previous economic cycles can help to ensure that these pitfalls are avoided.

How Pemba can help?

At Pemba, we have a leadership team which has successfully invested through previous economic crises. In fact, we implemented changes to our investment strategy over 7 years ago to insulate our business from future economic cycles.

Since 2013, we have consistently screened every investment opportunity to ensure it fits with our investment criteria and defensive growth strategy. One of the early questions we always ask is “what would happen to the business in an economic downturn?” and analyse the target company’s performance through the GFC as a proof-point.

COVID-19 has therefore provided the ideal test for Pemba and our ‘defensive growth’ focused strategy. Pemba’s defensive growth focused investment strategy and rigorous application of key investment criteria have to date successfully mitigated the impact of the worst global economic crisis in Australia since the 1930s.

Find out more

If you are a business owner or a potential investor and interested to understand how Pemba might be able to help you seize advantage during these challenging times, then please Inmail me to find out more.

Photo by Андрей Гаврилюк on Unsplash

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