The 2021 Federal Budget saw the extension of critical stimulus programs for challenged businesses. But while programs like the Canada Emergency Rent Subsidy (CERS) and Canada Emergency Wage Subsidy (CEWS) have been a welcome relief, many business owners are still anxious about what comes after they phase out in September, absent any further extensions by the Federal Government.
Not all retailers, restaurants, hotels, entertainment venues, tourism operators and hospitality organizations are in the same boat. Some have spent the past year making drastic cuts and changes to overcome pandemic disruptions, while others have had access to resources to weather the pandemic.
Stimulus programs will not last forever and while the odds of surviving beyond 2021 may appear bleak for some, there are reasons to hold out hope. There will be opportunities for recovery and/or strategic transactions for the taking. Borrowing costs are low, deals are getting done, and there are market strategies to consider for buyers and sellers alike.
How your business emerges from the pandemic will depend on the decisions, deals, and changes you pursue today, so here are our top points of reference to help guide your decision making.
#1. Let your balance sheet be your guide.
Are you looking for some stability beyond September? Have you taken on board additional debt over the last year? Now is a good time to take a new look at your balance sheet and determine options that may not have been evident a year ago. Those with stronger balance sheets may have opportunities to strategically deploy capital as the economy reopens, such as taking advantage of lower valuations to make investments in or acquisitions of struggling competitors. Those with weaker balance sheets, on the other hand, may need to start thinking about restructuring, selling, or exiting parts, or all, of their business to protect shareholder value. A strategic transaction may strengthen a weaker balance sheet.
Today, even organizations with stressed balance sheets are being courted by investment bankers at levels that would have seemed unheard of a year ago. Distressed companies may also find relief in re-financing. These types of transactions are becoming more commonplace with the amount of available capital and people willing to chase deals and yield.
Although pandemic-related government support won't be available forever, there are ways to strengthen your position, depending on the state of your balance sheet. The mergers and acquisitions landscape has changed; deals and transactions that may have seemed out of reach in the past are now in play. Whether the move is to acquire, sell, or take drastic restructuring measures, there's still time.
#2. Cut once. Cut deep.
If you've been waiting to make big changes to your business model, now may be the time to pull the trigger. Government subsidies and the low cost of borrowing may have extended the liquidity canal for certain companies and thereby inadvertently masked the need for wholesale changes to their business models. A formal restructuring process can allow companies to transform their businesses more efficiently and more quickly than under normal circumstances. They can also green-light large-scale business changes that may have seemed too drastic or severe before the pandemic, but are now seen as necessary to stay in business. This could include rationalizing locations, redeploying workforces, re-negotiating contracts, or any number of actions that enable the business to change course and survive.
#3. Consider: Is it time for restructuring?
Difficult times call for bold decisions. And if making deep cuts and business-wide changes is what it takes to keep your doors open after government supports dry up, then it's time to put restructuring on deck.
Want to take action on any of these tips or discuss them further? Our team is here to help. Contact our professionals to discuss the available options that could lead to a more prosperous future for your retail, hospitality, or entertainment business.
Let's do this.
Huey Lee
Partner, Deal Advisory, Restructuring and Turnaround Leader
British Columbia
+1 604 646 6398
hueylee@kpmg.ca
Pritesh Patel
Partner, Deal Advisory, Restructuring and Turnaround
Ontario
+1 519 747 8286
pritpatel@kpmg.ca
Duncan Lau
Partner, Deal Advisory, Restructuring and Turnaround
Greater Toronto Area
+1 416 476 2184
duncanlau@kpmg.ca
