Have the capital and courage? These are the businesses to invest in after Covid-19

As the Covid-19 pandemic and the resulting global economic shock affect New Zealand, we are seeing clear, unprecedented trends emerge in the business sales market. More than ever, business owners need professional advice on how to adapt their operations effectively to an entirely new market environment. For buyers, meanwhile, groups and individuals with capital and the courage to invest may face a once-in-a-lifetime opportunity. 

 As the virus is brought under control in New Zealand and industries begin or resume operations, the following 5 major trends are already emerging in business investment. There is good reason to believe they will continue to gather momentum over the short to medium term.

{ad}

Unemployed people look to buy businesses to replace lost income

Many recently unemployed people are considering buying a business to replace the income they have lost. In effect, they are looking to buy their future income, having recently been made redundant in a very tight job market. This will drive a surge in demand for businesses valued between NZ$100,000 and NZ$500,000 that are expected to generate a six-figure annual income for their operators. The last major trend of this kind followed the 1987 sharemarket crash.

Landlords become business owners by default

Many landlords in the hospitality and retail sectors will become business owners in the short term because many of their tenants, hit by the pandemic, cannot meet their rent obligations and no longer have the resources to reopen once the pandemic ends. This offers astute investors considerable opportunities to buy these businesses' assets cheaply and negotiate favourable lease terms with landlords eager to move them on, allowing them to start operating a business immediately at an exceptionally low entry cost.

Businesses seek equity partners to survive and grow

During the pandemic, the Government and banks introduced numerous policies covering new loans and repayment deferrals. However, many businesses whose cash flow and profitability have suffered severe blows are reluctant to take on more bank debt, fearing it will compound their financial problems over the medium to long term. Instead, they are seeking new operating partners and investors willing to buy equity in their companies. For example, a company that was performing well before the outbreak but has recently suffered a major setback would prefer to release equity rather than increase its bank debt. It is now seeking to sell a 20–40% stake to raise funds to restore operations.

New tax rules open a new market for loss-making companies

Under new tax rules, any business with tax losses has now become an attractive asset for existing businesses. If you own a business with accumulated losses, the value of your asset is now very different from before. Some investors are already looking for businesses that can maintain loss continuity and carry tax losses forward. Such transactions will, of course, be subject to numerous conditions, but they open the door to a new type of business sale, offering mutual benefits to loss-making businesses and the businesses and investors buying them.

Experienced, cash-rich buyers become more active

The post-COVID-19 business environment offers what may be a once-in-a-lifetime opportunity for groups and individuals with sufficient capital and, above all, the courage to invest. Investors who can see the medium-term prospects over 2–5 years and can withstand less-than-ideal short-term returns will be able to seize immediate opportunities from discounted sales, many of which may be forced through liquidation or receivership. These favourable market conditions are supported by record-low interest rates and government policies intended to provide liquidity and cash payments to small and medium-sized businesses over the short to medium term. Many experienced, well-funded investors have quickly recognised these conditions and begun looking for opportunities. 

Which business sectors could become investment hotspots?

Economists around the world have made a wide range of predictions about the upheavals this global pandemic will bring to business and which emerging industries it will accelerate. Broadly speaking, online services, online targeting, mobile payments and the digital economy will become sought-after themes. However, some small businesses previously regarded as marginal may also grow as the pandemic changes people's thinking.

• Healthcare

The devastation caused by COVID-19 will eventually end, but the concerns and warnings it has brought humanity will endure. Demand for masks, hand sanitiser, disinfectants, vitamins and health supplements, as well as home healthcare and medical supplies, will remain steady or grow for a considerable time.

• Social media

A few months is enough for people to become accustomed to, and dependent on, a new way of communicating and obtaining information. Social media continues to evolve, but its potential remains limitless.

• Remote working

Similarly, a few months is enough for businesses to become accustomed to a new way of working, particularly if it proves more efficient, reduces business costs and offers a better balance between work and family. Industries that support remote working and working from home will therefore grow rapidly.

• Online gaming

The social distancing required to prevent viral transmission has led people to spend more time at home, making online video games a beneficiary of surging demand for home entertainment.

• Online education

Do not assume online learning simply means moving children's after-school tuition online. Online education can cover everything from lifestyles and work skills to educational entertainment and spiritual guidance, with no age or geographical limits on its audience.

• Home DIY

The difficulty of getting outside help during home isolation, combined with ample spare time, has allowed many people to enjoy the satisfaction of doing things themselves. The pandemic will end, but the enjoyment of making small repairs and creating an ideal home environment will continue.

• Cleaning services

The spread of the pandemic has made people recognise the importance of cleaning and disinfecting public places. Professional cleaning services help protect the health and safety of staff and visitors at all times.

• E-commerce

The pandemic lockdown prompted many physical shops to launch or expand online sales. As people realise that this sales model, previously less common in New Zealand, can reduce businesses' staffing and operating costs and save consumers time, its momentum will be difficult to halt simply because physical shops reopen.

• Food and groceries

Before lockdown, liquor stores saw business surge. During lockdown, supermarkets were essential services. As soon as lockdown ended, long queues formed for fast food and café takeaways, while grocery-ordering websites nearly crashed. These extraordinary times have made people more clearly aware of which goods are truly indispensable.

• Delivery services

Online spending will inevitably accelerate the emergence and growth of delivery services.

• Pet adoption

Perhaps people need more companionship and comfort when they are lonely and anxious, or perhaps this pandemic has made them recognise the connections between all living things. Pet adoption and industries catering to pets' needs may see growth after the pandemic.

• 5G and bandwidth

In the early days of lockdown, almost everyone experienced slow internet or even outages at home, regardless of their provider. The growth of online business, entertainment, learning and work all requires faster, more secure networks.