Lift Me Up: UK firms to raise capital to cope with coronavirus
May 10, 2020
2 min read
What's going on here?
As lockdown persists due to the coronavirus outbreak, UK businesses such as The Gym Group and Hollywood Bowl have been seeking cash from investors to bolster their financial position.
What does this mean?
According to Peel Hunt, since mid-March, the UK market has witnessed a total of 32 equity raises, the process in which companies can raise their capital through the sale of shares. The Gym Group and Hollywood Bowl are two of the latest firms to successfully secure funding through equity finance. The Gym Group announced that it had raised £41.3m by means of a share placing. Meanwhile, Hollywood Bowl raised £10.9m with its share price at more than a 50% discount compared to the price seen in February.
What's the big picture effect?
The coronavirus crisis has forced almost all retail, leisure, and hospitality businesses to close. Effectively, their closure means such businesses will completely lose their main streams of revenues until lockdown restrictions are lifted. The much-needed cash raised will strengthen the balance sheet of the firms and will be crucial in helping them to stay afloat during the lockdown period.
Despite the uncertainty and concerns about the pandemic, the large amount of cash raised and secured by firms demonstrates that investors are confident that the economy will recover when the government alleviates strict lockdown conditions. Most of these firms had sound business models and had been making profits before the coronavirus outbreak. Prior to the lockdown, the Gym Group, for example, had been carrying out extensive expansion plans since 2019. Investors hope that the cash injected will increase the firms’ liquidity to weather this difficult period and prepare them to re-open with a robust financial position once the lockdown is lifted.
However, as more requests for capital are expected to emerge in the coming months, investors could become more cautious and selective in choosing which firm to invest in. There are concerns as to whether there will be enough cash within the market to support all struggling businesses. Alternatively, firms could look to raise money through debt finance that is particularly advantageous during this time. Applying for loans would be less burdensome for businesses since the interest rate has been cut to 0.1% and the requirement for collateral has also been reduced as per the government’s monetary policy. Nevertheless, it remains unpredictable whether both investors’ cash and the government’s support will be sufficient to save all businesses.
Report written by Long Dinh
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