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M&A transactions during COVID-19

16 June 2020

The response to COVID-19 continues to transform the world economy, change the working environment and has introduced a level of uncertainty rarely experienced for many businesses. Immediate loss of revenue and liquidity, changing regulatory environment and furloughed staff have led to an unpredictable future.

As a natural consequence, most M&A transactions have been paused, unsurprisingly from uncertainty of the future trading environment and outlook. Businesses are focused on their current operations and preserving their own business, employees and cash. Vendors are often unable to predict or explain the future for their business and it is a difficult environment for lenders and investors.

It is likely that in a post-COVID environment, many frozen transactions may not re-merge after such a change in landscape. They will of course be replaced by a new wave of opportunities, eg. sale of subsidiaries, now non-core or from distressed groups seeking to generate cash.

However, for those deals that are advanced or were nearing completion phase and where there continues to be a commercial imperative and appetite to continue, it is possible to succeed even in lockdown. Valuation is likely to be an emerging issue. It is certainly more time-consuming to progress any transaction as well as making lending and investment decisions more difficult.

The M&A arena has all the tools in place to progress deals and complete transactions virtually. Whilst a lack of real physical contact certainly detracts from the process and makes it harder for the buyer, seller, management teams etc. to build a relationship and confidence, it is still possible. We live in a world where conference calls, email, virtual data rooms and remote transaction completion are already in use and often the norm. In many deals face-to-face, meeting time has been replaced by electronic mediums and so the adjustment for lockdown has been manageable, if not minimal. Most professionals and experienced M&A executives are well versed in this route and has been the norm in International M&A.

One facet often overlooked is that the human touch is still often missing. With so many communication tools available and in use, so little time is dedicated to the personal side. In the current predicament and with so many transactions frozen indefinitely, this is an area where investment of time will pay dividends as a stronger relationship and confidence is developed ready for when business emerges the other side.

If you have any queries and questions in regards to this blog, please contact your usual UHY adviser.