M&A deal market after lockdown
The beginning of lockdown 1.0 was described as a gardener going out on a spring morning to find that frost had killed all the green shoots. We found that almost all the transactions we were dealing with were put on hold or collapsed as people turned their attention to more immediate matters of survival and coping with new working arrangements. No one could say how their business would fare in lockdown and beyond (even if they were up to that point confident of growth) and in the face of that uncertainty would be buyers lacked the confidence to buy.
That remained the position for much of the summer, however on return from the summer holidays and into early Autumn, we have found a significant increase in deal activity and these comments are intended give you the flavour of some of the factors we’re coming across in this new world.
Firstly there was a perception that mergers and acquisitions could not be done except after face to face meetings: that you had to be able to look your opposite number in the eye and that a deal could only be negotiated in the heat of an actual meeting with maybe a few drinks to help seal it.
We are finding that isn’t the case and that deals can be made and are being made in this virtual world that we now live in. That is not to say that there is not still a reasonable amount of meeting in real person going on but that has been reduced significantly. Our role as lawyers has been moving towards a more virtual environment for many years and lockdown has simply accelerated and completed that movement so that the entire legal process including the negotiations of the key documents and the poring over of due diligence documents is now done exclusively through our screens.
Valuations reflect that lockdown has seen both losers and winners. Some of the businesses that we are talking to have done far better than the anticipated and at least in one case had been saved by lockdown. Increasingly we see the pattern being that those working in a virtual environment and equally those that support the virtual environment are doing better than those are working in a bricks and mortar world however that is not universally true – for instance we are seeing that those supplying the building and construction sectors remain very busy. Valuations reflect there is still plenty of money in the system and lots of would be buyers looking for good deals.
With now over six months of trading since the beginning of the first lockdown those businesses that are looking to sell have got a track record to talk about and for enthusiastic buyers that is sufficient to project the future.
From what we are hearing, we do not expect Lockdown 2.0 to have anything like as an significant effect on deal making as Lockdown 1.0. There is an element of pent up demand going through at the moment and that will exhaust itself but the landscape is clearer with those shoots that survived the frost now standing clear of the field.
Specialist legal advice
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