2020 has delivered global pandemonium in a way that can only be compared to what conspiracy theorists had expected to see at the turn of the millennium back in 2000. With oil prices crashing into negative territory for the first time in history and the words “unprecedented” and “pandemic” easily becoming the most popular words in the English language, we watch Covid-19 wreak havoc on economies and communities all over the world.
Though there is plenty of cause for concern, to quote the First American, “Out of adversity comes opportunity” and at Shieldpay, we are already seeing an influx of activity to echo the words of Benjamin Franklin. Clearly, nobody will thrive during this period but companies with well managed liquidity will be the ones who survive. We anticipate a wave of consolidation over the next 12 months across all sectors and we will see the M&A industry effervescing during an economic rebound – and it is important to note that at Shieldpay, we are already seeing the groundwork for this recovery being laid.
Then and now
The Great Depression developed in early 1930 due to bank failures and a wholesale meltdown of the entire financial system. Risky lending, excessive consumer borrowing and insufficient regulation delivered The Great Recession of 2008. Clearly, this isn’t the first time in history that the financial system has seized up. However, the abruptness, severity and depth of the crisis today renders the Covid-19 induced Great Lockdown (as coined by the IMF) completely unique.
As history tells, we know that governments need to be able to inject liquidity in moments of crisis and promisingly, this has been delivered. The IMF is praising the “swift and sizeable” response seen in lots of countries, particularly the UK, US and Germany, but still warns that no country will escape The Great Lockdown unscathed with $9trillion expected to be wiped off global GDP over the next 24 months. This global pain marks the first time that advanced and developing economies are fighting the same battle at the same time, albeit from their own frontlines with slight, but significant nuances.
This isn’t just about propping up economies, businesses and households. The main concern surrounding The Great Lockdown hinges on the balance between maintaining - or indeed re-starting - economic activity, whilst protecting human life. The challenge is enormous and cannot be underestimated because the risk of getting it wrong will cost lives. Although disease-induced effects on the economy are rare, this has been seen before during the Spanish flu. However, the globalised nature of the economy in 2020 makes it a different beast to the economy during the 1918 flu pandemic.
Social distancing was enforced during 1918 too, though to a lesser extent, so this is likely to be the first time that government responses to a public health crisis result in an economic recession. Whilst there are numerous anti-lockdown movements across the world, MIT economists are promoting the finding that, based on a study of the 1918 pandemic, early and aggressive intervention did not mean a comparatively poorer economic performance, “and, if anything, economies grow faster after the pandemic is over”.
Unemployment rates and credit market distress are the two areas that will be under constant scrutiny to understand what kind of crisis this will turn out to be. During the Great Recession, unemployment changes were relatively short lived compared to the high unemployment that persisted for a decade following the Great Depression. With the redundancies, widespread furloughing and salary cuts we are seeing now, it is critical to understand if these are temporary reactions or if they will be long lasting. Billions of pounds have been freed up by the Chancellor and the Bank of England to increase commercial lending to businesses and make wage subsides and loan guarantees available to protect Britain’s jobs and businesses. With the interest rate cut to an all-time low and the UK Government committed to ensuring unemployment rates don’t spiral, this will hopefully allow for a buoyant recovery for our economy.
In uncertain times, all businesses need a partner they can trust with their money. Shieldpay’s core offering across the Professional Services side of our business is designed to support M&A transactions for any Escrow or Paying Agent requirements. Shieldpay is fully FCA regulated and safeguards client funds in ringfenced, insolvency protected accounts with Tier 1 banks, for example, Barclays in the UK. The Shieldpay technology verifies identities, secures funds and validates bank accounts of payees. This, coupled with a real-time notification and reconciliation system, means Shieldpay can facilitate payments of any size, frequency and complexity.
For further information on how we support M&A to Capital Raising and large ticket medical PPE transactions and beyond, please get in touch with Nabila Kazi to hear how we can help set up an escrow facility within 48 hours across the UK, Europe and US.