Mergers and Acquisitions in the Time of COVID

The Coronavirus pandemic has thrown a wrench into a lot of businesses’ future plans. Business exit plans have also been changed due to this economic crisis. Mergers and acquisitions have been among the many exit plan options that have been drastically affected by the crisis. While mergers and acquisitions have survived through other economic crises, like the 2008 financial crisis, this one seems a bit more drastic. Here are a few ways we can see the effects of the crisis on mergers and acquisitions.

First, through the deal activity surrounding mergers and acquisitions. As a result of the crisis, the number of mergers and acquisitions has dropped tremendously. Those who typically focus on potential mergers have been redirecting their attention toward the health of their own companies and their strategies moving forward. The industries that have been affected greater than others because of the pandemic, like hospitality, are seeing a growth in merger and acquisition activity, as they are industries that are easier to cut a deal in currently.

Another way mergers and acquisitions have changed over the last few months is through the delay in the timing of these deals. The timeline for making deals will likely be extended longer than usual, as it will be more difficult to accomplish. Negotiations, due diligence, and consent from third parties will likely take longer, and boards will likely be more cautious to make a deal. 

Because mergers and acquisition deals are typically financed with debt, the changes within the financial market have put a strain on the ability to receive debt. There are many questions surrounding the ability to receive debt and the terms that might come with that debt. Many people are unsure of how lenders and buyers alike will act during this uncertain time, so it has caused a slow down in lending for mergers and acquisitions.

There will also be a shift in the leverage of the deals, as there have been before in times of large economic shifts. The leverage goes from the seller to the buyer to create the deal they want. Private equity buyers have likely been handling their own business challenges, but they are likely also “cash-rich” meaning they can afford to find the right acquisitions for their business. Of course, businesses that have been hit hard by the economic downturn will be more focused inward, but those with a business that has seen success during this time might consider acquiring another business. 

Lastly, those who are acquiring businesses have additional challenges taking on additional due diligence to understand the effect of COVID-19 on the seller’s business. Issues surrounding how the buyer will be able to understand the seller’s management team and employees that make up the business, how their workforce will be affected by Coronavirus, if the seller has complied with federal and state regulations regarding furloughs and layoffs, and other implications that may complicate the arrangement.

As a company looking to be acquired in the near future, this information can be intimidating. But in order to ensure the best possible situation for all parties, you need to have your financials in order. At TGG, we want to help you keep impeccable financial records in order to create the best deal for your company moving forward. Contact us to book your free 15-minute assessment, to see how we can help your business succeed!

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