Are we heading for a recession?

I spent last Thursday at the annual conference of the UK branch of the Turnaround Management Association (www.tma-uk.org). The organization takes its membership from a variety of turnaround disciplines ranging from insolvency practitioners who pick up the pieces when it’s all gone wrong to interim managers who step into struggling companies and aim to turn them around.

The speaker line up was very impressive ranging from Steven Norris, former British government minister and now Chairman of Jarvis plc, to Russ Kane, former radio presenter and now both Chief Barker (CEO) of the Variety Club of Great Britain (a charity that raises more than $22m a year to help disadvantaged children of all backgrounds (www.varietyclub.org.uk) and CEO in Russell Alexander, a PR consultancy. Although all presentations were excellent and insightful, perhaps the most impressive was one by Jon Moulton, Managing Partner of private equity firm Alchemy Partners LLC. Jon gave a detailed explanation of the current credit crunch and explained in detail how it differs from credit crunches of the past (this isn’t just banks tightening their lending criteria, this is the fact that above a certain level, there simply is no credit available). What struck me about his presentation was that it seems like the chances of major economies slipping into recession are very high.

Naturally as CEO of Quickstart Global, my thoughts turned to what this might mean for our business and for the broader business community. My conclusions are:

1. Tighter lending criteria will mean that consumers will stop selling equity in their homes to bring in short term cash. This in turn will lead to lower consumer spending.

2. Companies that leveraged themselves significantly during the last few years and built up debt are likely to struggle if their earnings drop leaving those dependent on consumer spending particularly venerable.

3. Companies that did not build up debt and less dependent on consumer spending will be cushioned from the worst but may still experience a downturn in earning through a knock on effect of other companies reigning in their spending.

4. Globalization will have a similar boost to the technology recession of 2001/2002. That period showed that when lowered budgets became difficult to manage, companies turned to a globally leveraged solution or offshore outsourcing. My view is that they will do the same again giving a further boost to the globalization movement.

I am less certain of whether this will be global or not. Will India, China, Russia or Brazil fall into recession? I would say the jury is out on this. Apart from the IT giants, Indian companies rely on their domestic markets. Russia and Brazil are rich in natural resources where demand will stay strong. The only question is how much the Chinese economy depends on US consumer spending versus the domestic market?

Time will tell whether there is a recession or not. In today’s Sunday newspapers, the view of the chances of recession was mixed. Regardless, I am confident that more and more companies will turn to a globally leveraged model in order to maximize their competitiveness.

Finally, a word on the TMA. This was my first experience of this organization and I have to say, everyone I met was very impressive. These people knew their subject. Of particular note in addition to those mentioned above was an insolvency lawyer called Rachael Davis who has recently Olswang and Matthew Quade at turnaround specialist at PKF.