Executive summaryWhile many companies have tapped the equity markets for money since the start of the pandemic, the process of recapitalisation has only just begun. The needs of most are currently unmet and, as at September 2020, it is far from clear that supply will match demand over the next six to 18 months. The rate of equity capital raises in Europe has fallen by nearly 50% in the last decade. In the US, the average number of IPOs has halved from 300 annually 20 years ago. There has also been a 31.5% year-on-year decline in private equity sector activity in Q220. There is, therefore, significant risk of a capital chasm – a deep gap between the legitimate need for capital and its available supply. This brings with it the potential to rupture both the US and UK economies. Fidelity has already warned that institutions do not have sufficient capital for the task at hand and, with other sources at a low ebb, the risk of a chasm must be deemed significant. Given investors’ likely flight to safety with any further volatility, small- and mid-cap companies (SMIDs) are most at risk – as well as up to a third of all employment. Although quantitative easing (QE) has inflated asset valuations, it has, so far, provided an effective ‘crumple zone’ for the US and UK economies. However, due to diminishing returns, QE is unlikely to be sufficient to prevent the emergence of a capital chasm.
THERE IS MUCH WE CANNOT CHANGE, INFLUENCE OR EVEN KNOW
WE CAN INFLUENCE THE FLOW OF CAPITAL
No obvious way across the capital chasm
- Anne Richards, Fidelity International’s CEO, flagged that the asset management industry would struggle to provide sufficient capital to fix the solvency issues which public businesses face as they emerge from lockdown. She expressed concern that the scale of the cash required to repay the public funding businesses have received will be so large that it would depress recovery, and emphasised that as businesses recapitalise it is important they are able to access as many pools of capital as possible.
- Peter Harrison, CEO of Schroders, has stated that companies need more equity, not debt to secure jobs and promote growth. He has pushed for the UK government to create a £20–30bn patient capital fund to allow companies to maintain investment plans and protect jobs.
SEEK AND (SO FAR) YOU SHALL FIND
Number of deals
Total capital raised ($m)
% of total capital raised
|Market cap range||Number of IPOs||Number of FOs||IPO capital raised ($m)||FO capital raised ($m)||Number of deals||Total capital raised ($m)||% of total capital raised|