Corporate Liquidations Suggest a Double-Dip Recession Might Still Hit

Every pundit and his brother has a prediction about whether or not we’re in for a double-dip recession.

If we’re to believe the government’s indicators and message, our economy is improving. But it’s not hard to manipulate statistics and present them in the best light. After all, part of a recovering economy is consumer confidence and a return to lending and spending.

Companies Keep Going Out of Business

However, based on GGG’s last three years’ client base the economy isn’t looking so up. That is, more of our clients than ever before required asset recovery, surrendered to bank demands, and have operating losses. Even those that turn around are taking longer than our standard experience.

Now, before you go questioning the quality of our turnaround abilities, it’s worth mentioning that for the majority of our history, workouts were 95% of our business model, with a fantastic 90% success rate based on our client’s – not our – goals.

In 2008 and 2009, however, various forms of asset recovery were 50% of our business. More companies out there are failing or have failed and that makes more business for which we just go in to clean up the mess and recover as much value as possible for whoever is getting paid out.

In my opinion, that just sucks. I love turnaround. I love creating value. I love saving jobs. Shooting the company and burying it -though we do that and do it well – are not the sign of a fun time or a healthy economy.

Will We Double-Dip the Chip?

At the end of 2010, we’re still seeing significant asset recovery situations – around 25%.

Sure, that’s better than the 50% of the two previous years, but it’s still high, and as far as I’m concerned, the number of failing businesses that are past the point of turnaround is a sign that we may not be able to avoid a double-dip recession.

Another indicator of this problem – and one with which I work intimately – is the number of companies failing because they can’t find refinancing after the FDIC takes over their failing bank.

The dip might not be deep or as jarring as the first, but history tells us that it will still postpone a decrease in unemployment and a return to a normalcy in lending.

What To Do

So my advice, both personally and corporately: stay liquid.

That’s how our successful clients stay successful and defy market trends at times like these.

Use that liquidity in an emergency, to wait for wonderful investment opportunities or to buy out competitors when they falter – you could get great deals at low multiples or for deeply discounted asset values.

Consider Fortune 100 companies. They’re keeping more cash on their balance sheets than ever before and buying businesses or repurchasing their own stock at traditionally lower prices.

Everyone else may be dipping but staying liquid could keep you floating.

Until next week, watch out for the alligators.*

*I’ll explain the alligators in an upcoming post so stay tuned . . .

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