HOW TO SURVIVE A FINANCIAL CRISIS

Posted by Dcirrus No Comments on HOW TO SURVIVE A FINANCIAL CRISIS Uncategorized

HOW TO SURVIVE A FINANCIAL CRISIS

The Covid-19 pandemic has not only impacted the world’s health scenario but has had grave consequences on the global economy as well. A World Bank Report states that the Global Economy will shrink by 5.2 % in 2020 which may result in a financial crisis.

According to an analysis by KPMG, the world GDP is not expected to return to December 2019 levels until the end of the 2021 Q2 (if most economies have already faced their Covid peak and don’t face another wave of infections) or 2021 Q3 (if, to be more pessimistic, most economies of the world experience a second wave as well –which may be painting a rather bleak, but realistic scenario).

The USA, which is the worst-hit country in the pandemic, has undergone massive layoffs, with new applications for unemployment insurance at more than one million a week, only in the month of July (according to The Atlantic). This shows that companies are not doing well enough to keep their employees on board.

Additionally, a fall in demand is predicted to have a very slow recovery. This is because the economy as a whole, including consumers (which is nothing but everyone in an economy), has taken an impactful blow from the large unemployment digits and will take time to get back to their original demand levels.

This will in turn, again impact the equilibrium supply and employment levels (a vicious cycle), both of which show the general health of firms in an economy.

Even though the recession due to the pandemic is predicted to be the worst of all that the world has seen to date, it would only help us to have a look at how the economy was impacted by the past crises of similar heights.

In the above figure, it can be seen that the two highest numbers of Establishments Exit are in 2002 at around 7,50,000 and 2009 at around 7,20,000 which were right after the start of two of the most significant economic downfalls, The Dot Com Bubble Crisis, and the 2008 Global Financial Crisis, respectively.

It shows that most bankruptcies have taken place right after a financial crisis. Reasons for that can be – (a.) Drastic fall in consumer demand, (b.) Credit Contraction, (c.) Falling stock prices, (d.) Supply chain disruptions, and more. According to The Fortune – some of the largest bankruptcies occurred in the oil & gas, aviation, retail, and mining industries.

The below figure shows that the only two times there was a steep rise in Unemployment Rate levels after the fall in the 90s was right after the two financial crisis of 2001 and 2008, with the highest average Unemployment Rate figures from 2008 – 2013. It took the US around 7-8 years to get back to its pre-crisis unemployment levels.

The Unemployment Rate doesn’t only show the number of people in the labor force unable to find work, it also shows the inability of companies to hire workers. Instinctively, it is a pretty good indicator of the financial health of a company.

According to the Bureau of Labor Statistics, the (seasonally adjusted) Unemployment Rate in the US in April 2020 was a startling 14.7%, with a gradual fall to 10.2% in July (which is still quite high). This clearly shows the poor financial condition of companies in the US because of the pandemic.

Larger companies are expected to survive the pandemic and rise steadily, while start-ups are expected to face more difficulties. Getting funding is expected to get more and more difficult.

Are you in the middle of restructuring, fundraise, or an M&A transaction to survive the economic downturn? If you need help with the process of collaborating, file sharing, and file storing – we have the perfect solution for you!

You can use DCirrus’s Virtual Data Room Services to streamline the operations and survive the pandemic in the following ways:

M&A Due Diligence

During due diligence, tons of confidential information is exchanged, so all parties need to be sure that their assets and intellectual properties are being safeguarded. VDR helps to streamline this process.

Capital Raising (IPO, QIP, Private Placement, etc.)

Fundraisers require secure online spaces where financial information needs to be housed. VDR being a transparent tool, makes previewing files, super easy and secure.

Legal Document Management

When several lawyers review and negotiate a large set of documents, you need an organized system online that you can trust. VDRs are an excellent way to exchange information securely outside of your company’s firewall.

Audit Management System

Auditors, Forensic Auditors, etc. have to go through a lot of documents and share them with their clients. For that, they need a safe and secure Virtual Data Room so that they can focus more on their work, and less on the safety of their work.

Real Estate Transaction

The huge amount of data generated during these transactions is often accessed immediately,  by interested parties across varying time zones, so having an organized system that’s easy to use 24*7, is vital.

To know more about our services, contact us at –

Email – lalitmathur@dcirrus.com

Website – www.dcirrus.com

Sources:

Establishments Data – US Census Bureau Unemployment Rates – Bureau of Labor Statistics KPMG – COVID-19 and the global economy

World Bank – COVID-19 to Plunge Global Economy into Worst Recession since World War II

The Atlantic – The Terrifying Next Phase of the Coronavirus Recession

The Fortune – The 20 biggest companies that have filed for bankruptcy because of the coronavirus pandemic