In last few weeks, I have been talking with different firm partners concerning the impacts of COVID-19 in the Merger and Acquisition (M&A) industry.
The popular consensus is that the industry is going to be negatively impacted in the next six months. This is due to the possibility of deals freezing and therefore firms losing profit.
In particular, US firm operations reported to be down by 50% at the end of March 2020, in comparison to their 2019 recordings (Forbes.) This is similar to Spain who reported a downturn greater 50% in May 2020 compared to their 2019 reports (TTR). Therefore demonstrating a general downturn trend in Global M&A firms.
Yet, there is an opportunity to create value at lower prices.
Imagine having a business which was affected by the COVID crisis. Before COVID you decided to have a high leverage level and earned a lot of income through this. During COVID your ratios become weary and you have issues paying back your debts to pay your suppliers and your employee’s salaries. Now at the end of COVID, your earnings have decreased and now you’re stuck with financial debts.
However, the leader of the market offers you to acquire the company. Before COVID the company was valued between 30% - 50% more than tHe current COVID values. The buyers have a solvent financial situation to pay all debts and keep the activity of the business running. So, what will you do?
This is the opportunity for deal makers. To create values for buyers.
More than 50% of deals have been paralysed. This is a big fear for M&A firms. However, the current situation is totally different and they must change their previous mindset to succeed in the current situation.