Corporate finance during the pandemic
How the Covid-19 pandemic and the lockdown have affected the world of M&A.
Having recently completed another transaction, and with more businesses now opening after lockdown, we think it is a good time to share some thoughts on current M&A activity.
Our most recent deal was the sale of the Martindale Group – an international manufacturing company with a 140-year history, based in Birmingham, with additional operations in Thailand and Ghana. As deal advisors, this transaction is part of an overall pattern of reassuring levels of M&A activity.
Although we have worked through previous recessions, including those of 2001 and 2008, the speed and severity of this year’s downturn feels like uncharted territory. It is hard to forecast what the longer term impact of the virus and the lockdowns might be on both the economic as a whole and on deal activity in particular. And, needless to say, the human side of the crisis has been of far more concern in recent months.
Looking back on the second quarter of 2020, here is what we have observed.
Sound transactions have continued to go ahead
Those transactions that were always sound long-term strategic decisions have still proceeded, just more slowly. Having built momentum over months or even years, the current hiatus can be viewed as a blip rather than a fundamental shift.
Cash has been available from both public and private markets
Stronger companies, with good prospects for weathering the storm, have had access to plenty of equity finance through the public markets. Private Equity firms have also been willing to top up the cash reserves of their portfolio. Having got through the lockdown, many companies are now able to return to focusing on growth. Some are also repaying ‘rescue’ funds that proved unnecessary.
Both Private Equity firms and trade buyers have shown interest in bolt-on acquisitions. Private Equity firms have also continued to raise new funds, and the need to deploy capital is leading to increased volumes of outbound deal searches for new transactions.
Subsidiaries are up for sale
Businesses or groups with weaker balance sheets are being sold or broken up. This is particularly true of highly-geared groups who have grown through debt-funded acquisitions. Strong subsidiaries and non-core divisions with good long-term prospects are coming to the market and successfully finding acquirers.
Of course, there are also business failures in sectors including leisure, retail and travel. Whilst these represent the most negative end of current activity, for turn-around investors this may be a good time to be active in the market.
Technology is being used to keep transactions moving
Most M&A professionals were already accustomed to remote working, relying on video conferencing and online data rooms for cross-border deals. Recent events have only served to enhance this ability to collaborate remotely and made confidential meetings with multiple parties easier and more common. For business owners seeking comprehensive advice from corporate finance advisors, lawyers, tax specialists and others it has never been easier.
