It may be that the thought of Spring weather leads to irrational optimism, but we think there are signs for hope in the economy after a very long economic Winter. Just as the coldest weather comes at the end of Winter, so it is with the economy with companies everywhere seeing pressure on volumes and margins. Everyone we speak to seems to be finding business tough and considering further cost cutting. When one puts this together with the news from Cyprus and North Korea one may be forgiven for thinking that it is just going to keep on getting harder to run a successful business.
However, we take a positive view and there are a number of factors that give us cause for optimism on the macro front:
- Although North Korea is threatening nuclear attack on the US, it seems that they probably do not have any practical nuclear weapons, so we may not need to worry too much yet.
- German tax payers continue to bail out the Euro.
- UK banks admittedly have to raise new capital, but at £2.5 billion it is much less than originally feared.
On a more micro scale, we have worked on three successful refinancing so far this year: one all debt, one all equity and one a mixture of the two. This experience leads us to conclude:
- There are substantial amounts of money held by private individuals looking for opportunities to invest. EIS tax relief makes investments in early stage companies very attractive for High Net Worth investors and that market has become much more active of late.
- The banks seem to have reopened for business at last. We have been able to have serious conversations with a number of banks in recent months and, while offers have been expensive by the standard of five years ago, we have been able to conclude deals. Indeed, in recent weeks we have enjoyed the unusual situation of bankers calling us.
All the deals we have been working on have been in the cleantech sector, but we hear whispers of positive news from other parts of the economy as well. The bizarre London house price boom continues and we hear that new car registrations are also rising again.
Clearly we are not back in boom times and clearly business remains tough for many people, but we do believe that, if the supply of equity and, more importantly, debt continues to rise then there is every hope that business will start to improve. Roll on Springtime.
Stephen Kimbell
April 2013
