Mar
13
The Virus Effect on M&A | The Corona Correction | Refinitiv


Welcome to the Corona Correction series in
association with Refinitiv on your host, Roger Hirst, Cornelia Andersson analyzes trends
in global M&A. I wanted to ask her how this segment of the
market was being affected, is price action providing opportunities, where the general
outage creating a bottleneck for both the initiation and completion of deals. While deal makers started the year with a
very positive outlook expecting increased activity in both M&A and capital raising deals,
that is now starting to change. And we’re also seeing a real divergence in
investor behavior. On the one hand, we have a flight to safety,
where investors are looking to put capital to work in really safe assets. On the other hand, we have a much more interesting
trend, which is one where market disturbances and global turmoil creates opportunities. It doesn’t create opportunities just for any
kind of investor, but for those that have the capital and the acumen to be able to execute
under challenging market conditions. One area where we’ll see an impact is on the
ability to execute transactions. In the first area where this will come into
play is deal origination. Large M&A deals are typically the result of
a series of face to face meetings, often over a significant period of time. Then moving on and looking at the due diligence
process, which is typically the next step in an M&A transaction. There are some real challenges to being able
to execute an efficient due diligence process as the results of the spread of Corona. Then looking at the execution of the deal
itself and particularly the financing side, there will be an impact both to the cost of
capital and the ability to access capital market for certain types of acquirers and
issuers. Lastly, if we look at structuring the deal
terms, we’re going to see some interesting conversations and probably some challenging
negotiations, particularly around clauses such as ‘adverse material changes’. So it’s likely that the impact of the Coronavirus
and M&A and capital raising, is a story of a delayed effect, where we’ll see activity
pushed back to the last two quarters of the year and deal makers and issues really catching
up on lost time as we move into the second half of the year. If the situation worsens, then it’s likely
that we will see a reduced volume of activity across the board. So Cornelia does see this environment providing
a few opportunities for those who are prepared and nimble. But it sounds like this will be far outweighed
by the impact on face to face deal-making, issues with the legal process, and ultimately
the difficulty in financing deals in the capital markets in the prolonged period of lockdown. Although M&A has taken something of a backseat
to private equity and venture capital in recent years, these businesses will also be facing
many of the same issues, and volumes will be underwhelming even after peak fear has
passed. Therefore, there will be a significant backlog
of business building up into the second half of 2020. We’ll see tomorrow with another update.