Capital Markets and M&A | Under COVID-19
By Joe Sands | Apr 17, 2020INITIAL IMPACT
The unprecedented shut down of the US economy has jolted all industries and left only a few benefiting from the crisis such as select healthcare, food manufacturing, technology, ecommerce, grocery and mass drug stores. The capital markets have been highly difficult from a logistical point of view with the ‘stay at home orders’ and firms having to restructure operations to serve clients and market participants unable to meet in person or visit the businesses.
The lack of transparency, liquidity, precedent or even the ability to predict when and in what form the economy will reopen makes the ability to value businesses and securities difficult to say the least, never mind assessing risk in a business or a transaction. We are mindful that as fast as this crisis arose, it’s becoming more conceivable that a substantial, but not full reversal may occur in the near term over a couple of quarters. We are hopeful.
UNCLE SAM’S INITIAL RESPONSE
As rapid as the crisis hit, the US fiscal and monetary policy response has been equally rapid and unbelievably robust. In addition to the government response, the responses from the medical & scientific communities and the private sector has been like nothing ever seen before. The US government and the Federal Reserve provided in excess of $4 trillion of liquidity within weeks and before much of the damage, not months after the damage as in previous crises. The public equity markets fell by an astounding 34% from their peak in only five weeks and bounced back in three weeks as a result of the fiscal and monetary policies and some encouraging signs of the virus subsiding or not even coming close to the disastrous scenarios previously forecast.
OUR RESPONSE
On a case by case basis, each client engagement is being evaluated based on the stage of the engagement, specific business issues, and industry dynamics. As always, we are focusing on our clients’ best interests and focusing on presenting options and the benefits and risks of each option. Our goal remains to maximize value, deal terms and the probability of closing in each of our engagements. For most sell-side M&A and growth capital raise engagements, the general options being reviewed are (1) pause deal marketing until the capital markets settle down, (2) expand the depth of due diligence, (3) extend process timeline to allow for additional due diligence or expanding the marketing outreach, and (4) modify deal terms to reallocate risk sharing. For buy-side M&A, additional efforts are implemented to the extent that more favorable valuations and targets may be available. Experience and expertise are what is most important for clients to make informed decisions in these challenging times and that is our mission. Read more »