Calls to capitalise on European Investment Fund comes as Scottish businesses struggle for liquidity.
BY KENNY KEMP
Scottish businesses will need more immediate access to European funding in the early months of 2009, according to one senior business leader.
"We really need small business representation on the distribution of the European Investment Fund money so that we can ensure that it hits the right targets - and doesn't prop up the banks' lame ducks," said Duncan Walker, the president of West Lothian Chamber of Commerce.
"I'm concerned that the money might not go to the successful businesses that need it the most.
"I think distribution must be done in conjunction with forums of the local chambers and the small business federations. We've got to work together with the banks," he says.
In October 2008, prime minister Gordon Brown announced £250 billion in extra liquidity and bank recapitalisation to help SMEs, as part of the ambitious Europe-wide bail-out. He called for the European Investment Bank (EIB) to boost lending to small businesses. Chancellor Alistair Darling and Peter Mandelson agreed with Philippe Maystadt, the head of the EIB, the European Union's lending arm, that additional funds would be used in a rescue package that was applauded across Europe.
The EIB loans can support investment up to 25 million and can be applied for through a company's existing bankers. But Walker says stronger representation is needed so that the £4 billion European funding goes to the right places.
"We know this money will be vital to helping Scottish businesses in the early months of 2009. Yet it has taken some time for the banks in Scotland to gain the proper authorisation. We can't allow this dragging of feet to continue because, in the interim, good businesses will go to the wall," said Walker, who is a senior partner in an accountancy firm advising SMEs.
Walker's call came as Scottish business faced its most unnerving new year for decades. David Leslie, the head of corporate finance in Scotland for PricewaterhouseCoopers, said that he anticipated a flurry of "distressed" mergers and acquisition activity in the early months of the year.
"Deals will be done for different reasons. In recent years, private equity and corporate activity has been fuelled by readily-available cheap debt and high trading multiples. This meant business owners were very well placed to realise full value for their businesses. The whole landscape has changed and potential buyers will be looking at the actual cash position of a business."
In 2009, the need of businesses to release cash will be the key driver for deals in Scotland. Even Scotland's leading business figure, Sir Tom Hunter, is looking at every aspect of his empire to release vital cash.
Last week, USC, the 58-store fashion chain owned by Hunter, called in accountants PKF, when the business was hit by the credit crunch. The administrators immediately sold up to 43 stores back to a subsidiary of Hunter's West Coast Capital and are winding up the remainder, with up to 300 staff losing their jobs.
Jim McMahon, who set up West Coast Capital with Hunter, said: "The survival of the core businesses could only be secured through this deal. Ultimately, we had to ask ourselves what's better: the loss of 15 stores or all 58?"
Commenting on the wider picture, PwC's Leslie said: "We will see a raft of distressed and accelerated deals, where struggling businesses look for a safe home rather than the spectre of administration. These transactions may involve consolidation - achieving strength in numbers through bigger balance sheets - or they may be acquisitions, where buyers will have the opportunity to pick up some high-potential assets for attractive prices.
"We are already seeing businesses selling non-core assets to realise valuable cash, plugging earnings gaps and helping them to avoid moving dangerously close to covenant breach," he added.
"Now, we find ourselves in a buyers' market from which some big winners will emerge over the coming years - principally, those with cash who have an appetite for risk and an eye for an opportunity," said Leslie.
Last week, the French women's clothing store chain Morgan, which is 40% owned by private equity group Apex Partners, became the latest store to go into administration. The company, which expects to report a 9% decline in 2008 sales, said it still hoped to be able to sell the business.
Morgan, which has a single Scottish store in Glasgow, has 575 stores in 57 countries around the world and directly employs 1000 staff.
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