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2021 - An SME Outlook
Matt Dixon • January 28, 2021
Against a backdrop of unprecedented disruption, there are likely to be transformative opportunities for strategically-minded SME chemical and life science business owners.
2020 was a testing period for all businesses, but the impacts of the global COVID-19 pandemic were not felt uniformly across the chemical and life sciences sectors. Some sectors suffered whereas others benefited, not always predictably so.
Large international conglomerates with diversified product offerings and end-markets were generally better able to weather the storm of financial and operational disruption. Smaller, often owner-managed specialty businesses with high sector focus were more likely to face greater extremes of threat and opportunity.
Turning the corner into 2021, the forecast – though more optimistic – remains unclear. On one hand many countries around the world continue to operate under varying degrees of lockdown restrictions, while on the other the commencement of vaccine roll-out programmes appears to offer a light at the end of the tunnel.
However, despite the ongoing uncertainty, there are signs that 2021 will offer a rare combination of market factors which could present exciting opportunities to SME owners that can carve out time from fire-fighting to take the initiative.
Backlog of existing opportunities
The experiences of CCD Partners’ clients across 2020 was broadly typical of those of many across the market, with many deals facing completion delays caused by the physical and legislative disruptions of the pandemic.
Despite innovations including virtual site tours and interactive video calls, without in-person inspection of assets, buyers were (and still are) reluctant to proceed.
As well as impacting M&A processes, restrictions on movement and a shift of priorities towards fighting the pandemic have also had many other knock-on "slow-down" effects. For example, regulators have de-prioritised inspections of non-Covid-related sites, holding back the approvals essential for many products to be manufactured and sold.
Furthermore, the billions of "dry-powder" private equity capital has not gone away. Investors are sensibly cautious where to deploy their funds but ultimately they need to use it or lose it.
The cumulative effect of these and similar factors has been the accumulation of an an ever-increasing demand vacuum for products and services as well as M&A and investment.
Emerging new opportunities
The pandemic has also created a raft of new opportunities.
Business leaders are being forced to re-assess their strategies, looking at entering new markets or exiting old ones, paring down non-core operations and optimising what's left. Each of which may require acquisitions, divestments, investments, or new talent.
We are also aware of previously steadfastly independent businesses now opening up to collaboration/M&A due to financial or market pressures.
Getting ahead of the curve
With lead times on M&A and investments spanning anywhere from six months and up, business leaders and investors are not sitting patiently waiting for the pandemic to pass.
Instead, as evidenced by CCD Partners’ significantly increased volume of inquiries in 2020, business leaders and investors have made the most of the enforced ‘downtime’ of the pandemic to put in the groundwork to be ready once conditions improve.
We have been working with clients to assess the shifting markets, define their best strategies, and engage with potential target acquisitions, partners, and investors so that our clients are first in the queue once the markets open up and deals can be completed again.
Lockdown and closed doors are hiding a hive of activity.
Implications for SMEs
SMEs looking to sell or raise capital in 2021 are likely to face competition for the attention of buyers and investors juggling a backlog of existing deals with varied new opportunities.
This means it is more important than ever to build a compelling narrative that explains why your business will transform their business to fit with their objectives and to make engagement with you as painless and low-risk as possible.
Some examples of our recent work in this regard include:
- showing how recent disruption has accelerated certain markets meaning opportunities we all thought were 10 years away are now 5 years away
- clearly explaining the adverse but temporary impacts of the pandemic on 2020/21 production/sales
- providing sensitivity analyses that show resilience to any further waves of COVID-19
In summary...
These unprecedented market conditions present exaggerated opportunities and threats to SME business leaders. The key to maximising value and avoiding being burned is to pro-actively prepare, understand the other side, and engage on your terms.
CCD Partners is a consultancy specialised in corporate transformations in small and mid-market chemicals and life sciences businesses.
To organise a call with one of our partners please email contact@ccdpartners.com
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