Impellity: No Cash M&As
Mergers & acquisitions (M&A) is a pragmatic approach to solving much of a business’ problems. Cash buyouts in a post-COVID world are likely to be scarce on the ground, and strategic M&A deals are likely to hold more relevance in business momentum and market agility, providing the M&A is a good fit for all parties involved.
The global coronavirus pandemic has changed every facet of everyday life. It accustomed those whose jobs allowed it to work remotely, and it highlighted the importance of adequate living spaces and access to the great outdoors, a chain reaction for the abandonment of big cities by disillusioned urbanites whose priorities had finally begun to shift.
Predicting the economic eventualities of COVID-19 is another matter, and the coronavirus crisis is having – and will continue to have – a lasting impact on the way M&A are conducted.
The M&A sector is no stranger to global crises. It has endured and survived the dot-com boom of the late 1990s (when the rise of tech-based start-ups inspired investors to inject money into internet-based businesses in the hope that these fledglings would soon turn a profit), and the Great Recession of the late 2000s.
What these past crises have afforded us is the forecast and foresight to predict what the future of the M&A market will look like post-COVID. Unlike past crises that have affected M&A activity and deals, there has also been a significant shift in the manner in which M&A transactions are procured and negotiated: key players in M&A decision-making are continuing to unlock opportunities for brands, retailers, and investors to reshape their futures through remote working and the effective use of creative, collaborative tools and technologies.
For some organisations, specifically those experiencing considerable disruption to their supply chain, there will be strategic opportunities – and in some cases, necessities – to get involved with accelerated funding or acquisition arrangements in order to protect the shelf-life of their existing arrangements.
Retail has been one of the industries most affected by COVID-19. On the positive side, supermarket, pharmaceutical, and e-commerce marketplaces have cultivated some sense of normality, supporting access to essentials, while other non-essential retailers have shuttered or cut back their operations significantly, forcing millions of workers to be laid off or furloughed.
Every company or organisation – from multimillion conglomerates to SMEs and start-ups – will have a different story to tell about their experiences through the coronavirus pandemic, yet there will likely be one of three outcomes that unite them all: they were unaffected by the pandemic in the sense that they operated as normal (but were unable to upscale), and are still coasting until the market returns; they were heavily affected and were slowly burning funds and resources to stay afloat; or they were operating within a 'lucrative space' environment that enjoyed rapid scaling, which in turn presented a problem in the procurement of additional resources and manpower.
No matter what three of these scenarios a company has been experiencing, they’re likely in a spot of bother, because as the old adage goes, "in business, you're either growing, or you're dying".
But how do you grow your business when the coronavirus has disrupted every aspect of operation, specifically company finances and investment?
Despite this doom and gloom, the experience of past crises shows that there is still the potential for significant value creation through M&A across all industries. Though we're not yet out of the woods, trends are emerging already that are likely to create M&A and alliance opportunities that will hopefully enable retailers, brands, and investors to shape the new normal post-crisis.
No-cash M&A deals are an innovative – yet sensible – option for businesses looking to grow or upscale, as it helps to merge cash, talent, and technology resources while tapping into more robust and stable assets to achieve a higher multiple in the recovery period.
Relationships in the M&A world have always mattered, as deals have historically revolved as much around serendipitous conversations as they have around boardroom meetings and strategic manoeuvres. Social distancing and global lockdowns have changed those chance encounters and the get-togethers that inevitably help dealmakers to build trust.
Yet despite the lack of face-to-face meetings, deals are still going ahead. All-day video conferences aren’t unusual, and while site visits are still a no-go in some jurisdictions, potential investors are looking for creative ways to carry out ‘business as usual’, such as utilising drone technology to present a reasonable solution.
If the pandemic has taught us anything, it’s that digital meetings can replace most face-to-face meetings, and this is something that’s likely to spill over into all future M&A deals, including signing, due diligence, and deal closings, and work best for information sharing or to discuss issues where the parties’ mutual interests are broadly aligned, such as timing and process issues.
Similarly, there are a handful of meetings in the M&A process that cannot easily be replicated in a digital space, such as deal origination and management presentations that are vital in establishing goodwill and trust between those involved. However, as the younger generation – who are more predisposed at developing meaningful relationships with people online – replace older generations, digital meetings are less likely to be an obstacle to establishing trust and goodwill.
Generally, from now on, it is expected that virtual platforms will become the norm for most deal processes and for the evolution of technology to continue to make this more effective. In-person meetings will be the exception, rather than the norm, and will be limited to those times where it is absolutely necessary or strongly preferred.
Due to this, the complete cycle of an M&A is likely to be shorter, due to the ease of scheduling virtual meetings. Digital meetings are also viewed as more collaborative, as people tend to be more focused on getting through the agenda quickly.
While some of the changes referred to here are likely to evolve beyond the current crisis (and the respective bargaining strengths of sellers and buyers becomes more equalised), as with many other areas of our lives after coronavirus, it seems likely that much of the virtual technology we have been using to get through the pandemic will stick around.
Aside from companies looking to digitise the M&A process, smaller brands who have somewhat floundered during the coronavirus pandemic are looking to merge with other brands of a similar ilk to increase expertise, strengthen their supply chains, and diversify their portfolio.
Routes to market are much easier to come by than they previously were, and organisations are looking to find their place by merging with other companies who are doing the same thing. Long gone are the days of brands trying to put their competitors out of business: on the contrary, we're seeing more and more M&A deals agreed on the principle of strength in numbers, a product of post-COVID uncertainty.
Quite often, funding can be difficult to come by in some sectors, but there’s an abundance of talented, high-quality workers on the market, and the recruitment landscape is the best it’s been in a decade. As the war for talent rages on, professional development opportunities are a key differentiator in the rejection/acceptance of a job offer, and the merging of two brands with similar offerings and culture instils a strong sense of employee productivity and retention.
While the world cannot escape the economic impact of the coronavirus pandemic, it’s expected that M&A activity will accelerate as the crisis stabilises, creating opportunities for financially positioned players to acquire or merge with less advantaged players, or for two less advantaged players to join forces.
Now is the time for all businesses to evaluate their position post-crisis and to define their role in the new normal, re-evaluating their financial health, segmenting the M&A market, and contemplating new deals and partnerships.
If you are interested in how M&A could help your business develop and grow, please make an enquiry at https://impellity.com/mergers-acquisitions. We look forward to hearing from you.