Looking to the M_A Markets of the Future

Jun 9, 2020 11:10 PM ET

If you asked anyone in the merger and acquisition market six months ago about their predictions for the year ahead, they’d probably point to a flatline graph. The new decade was off to a steady start and you’d be forgiven for thinking it would take an event as severe as, say, the 2008 financial crisis, for any serious disruptions to occur.

Now, lo and behold, we have something even worse than that – and we don’t know when it will end. The economic paralysis imposed by recent events has thrown the M&A world into unfamiliar territory. Reuters reported a decrease of nearly 50% in domestic deal volumes in the first quarter, while international M&A fell 28% in the same period.

But is it doom and gloom for all? Maybe not.

Looking Forward

Experts foresee an even worse picture in the second quarter. Several major deals are set to grind to a halt, while others are hanging in the air or falling apart completely. This is exemplified at the top end, where Xerox Holdings Corp decided to withdraw from their $35 billion hostile bid for HP to focus on internal issues brought by the pandemic.

It’s a peculiar situation. There’s room for creativity, but private equity firms don’t want to risk their taking advantage of current opportunities being interpreted as predatory behavior. Committed capital abound, but the PE firms’ ability to utilize it dwindles as businesses focus on essential operations.

New Horizons

Following the above point, social distancing measures have made the in-person meetings that traditionally accompanied M&A deals nearly impossible. This has given rise to the virtual deal room, a creative solution that provides business owners with the confidence they need for a successful merger-and-acquisition, without the physical aspect.

Now that the M&A market is less crowded, there’s also a uniquely low amount of competition for PE money. Businesses that have faced recent events may be inclined to accept bids that are a fraction of what would be settled for just a few months ago, as they are ever-more constantly reminded of their mortality.

Granted, the volatile period makes the gap between buyer and seller value perception wider than usual, and that disconnect needs to be addressed for most deals to go forth.

Change of Mind

Business owners need to be realistic about the current state of affairs. Many are still in panic mode and many more in denial. Capital injection, even if it’s less than what it could have been last year, is a necessary measure for survival.

On the other hand, buyers should be open to new approaches. Some out-of-the-box thinking can reveal long-term prospects that are worthwhile investments despite everyone sailing through rough waters at the moment. Consumer spending might be hanging on by a thread, but e-commerce, for instance, looks ahead to a bright future.

With some stability, both buyers and sellers can shift their focus from essential challenges to long-term prospects. Taking advantage of current opportunities doesn’t have to mean a hostile takeover if both parties benefit from

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