05 August 2020
The future of M&As
There’s no denying that the M&A market has been significantly impacted by Covid-19. At the start of lockdown in the UK, many transactions were cancelled or put on hold, as parties braced for the unknown, bringing the market to a sudden and unexpected halt. But it’s not all doom and gloom for the future, as we’ve seen activity increasing.
Inevitably some of that involves distressed businesses that have been unable to access CBILs or other funding, particularly in the hard-hit events, food, leisure and retail sectors. There has also been a notable increase in insolvency-related sales and purchases. Some are wisely taking pre-emptive action, as in one case of B P Collins’ recently, that saw two competitors acknowledging that they could weather the storm better together than alone.
With the Government-backed furlough scheme gradually being phased-out, companies are thinking strategically about how to strengthen their existing business, and looking for opportunities, such as growing digital revenue streams. For example, training businesses are anticipating lower demand for face-to-face assignments, but a much greater demand for online. Those that can restructure quickly and decisively stand a good chance of leaping ahead of those businesses that are less able to adapt. Waiting for things to return ‘back to normal’ is not an effective strategy at present.
But how has the pandemic affected the way we transact?
With risk being one factor at the forefront of every decision made by a business, we expected buyers to take a more cautious approach, but in many cases, we’re seeing business owners being very pragmatic in transactions. Perhaps acknowledging that it’s very difficult to accurately predict the future at the best of times, let alone in the midst of a global pandemic, Brexit negotiations, US elections and major economic uncertainty, businesses are focusing on what they can control, strengthening where possible to give them the best platform from which to navigate the future.
That’s not to say that due diligence is irrelevant, but perhaps becoming more targeted, with greater emphasis on important contracts, particularly complex supply chains, which at the start of the pandemic, were severely disrupted or made nearly impossible.
For transactions being resurrected from where they paused in mid-March, the challenge for businesses and their advisers is trying to establish whether the due diligence done then is still relevant now and agreed prices are coming under scrutiny as buyers seek to ensure the underlying target business remains as expected. In trade sales we expect to see more examples of vendor funding by way of deferred consideration and/or earn out mechanisms and purchase price adjustments built into deals to give buyers more confidence that they will pay a fair price whilst enabling sellers to exit. This in turn means that agreeing on a purchase price and such arrangements will not be easy.
Whether these changes are here to stay or not, having experienced, pragmatic and flexible advisers will help buyers and sellers to get their deals done and B P Collins can help you to make the right decisions. If you require our assistance on any of the above or on other pertinent issues, please do not hesitate to contact our corporate and commercial team on 01753 889995 or email firstname.lastname@example.org.