Coronavirus » M&A activity offers opportunity to CFOs, FDs

Merger and acquisition (M&A) activity in 2020 looks different than in years past, but economic downturns can signal success for opportunists.

“The economic shock and the uncertainty caused by lockdown has prompted some transactions to pause, and others which hadn’t yet come to the market to be delayed,” Paul Joyce, partner and London head of M&A at Mazars, said via email. “However, that doesn’t mean the M&A market is closed.

“We’ve continued to see transactions complete and the volume of committed capital in both the private equity and debt markets means that funds will be keen to continue to deploy capital into attractive sectors and assets.”

According to the Office for National Statistics, Q1 2020 domestic M&A was worth £3.2bn while outward M&A was worth £3.4bn. With an overall upward tick, there are opportunities for savvy finance leaders to take advantage of distressed assets in the market.

“Corporates with capital and strong balance sheets are seeing this as an opportunity to make acquisitions at potentially depressed valuations,” said Joyce, adding that companies are looking at the right time to divest on non-core or loss-making subsidiaries.

Although there is opportunity, there are also a myriad of considerations for CFOs to consider making any M&A moves. Due diligence is key, alongside valuation and funding—all of which have been impacted by coronavirus, Joyce said, and can be expected to continue being impacted in the coming months.

Understandably, the M&A landscape is operating differently than it has in years past. However, finance leaders can prepare themselves by thoroughly evaluating data, juxtaposing years past to the current environment and ensuring that the business is healthy enough to pursue M&A.

Additionally, while coronavirus has clear differences to the 2008-09 financial crisis, there are lessons for finance professionals to keep in mind when pursuing M&A during a similar economic crisis.

Peter Horsley, management consultant at Bain & Company, explained that while there was a lower level of M&A activity during the first crisis, there was a relatively quick rebound.

“When we look at the performance of companies coming out of the big downturn of 2008-09, we see that the better performing companies used that period to widen the gap, to change the rules of the game, the competitive situation within the industries—and M&A is a really key part of that,” says Horsley.

Giving the example of some of the landmark M&A deals borne out of the financial crisis, such as Lufthansa’s purchase of Austrian Airlines, Horsley added that these downturns provide finance leaders with critical opportunities to advance the business.

“We think downturns are a great opportunity for companies to reset their competitive situation,” Horsley says. “We see the better performers continuing to do M&A through the cycles in those periods, and I think that’s probably the biggest lesson to take away.”

Joyce concurred, saying that while conservative advice would be to wait until coronavirus has stabilised, there is a school of thought which urges those with robust balance sheets and a strategic plan to take advantage of the market.

“During any period of uncertainty there is risk, but also opportunity,” Joyce said. “those companies that are able to assess and mitigate those risks will be able to take advantage and potentially steal a march on their competitors whilst others sit and wait.

“The key will be to weigh up the relative risks and rewards. If the risk can be properly assessed and mitigated through due diligence and the rewards are quantifiable and valuable to the long-term objectives and success of the acquirer, then waiting might not be the optimal strategy.”

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