Capital Markets and M&A | Under COVID-19

Capital Markets and M&A | Under COVID-19

By Joe Sands

April 17, 2020


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.


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.


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.


  • Strategic Acquirers – a tale of two paradigms – strong well capitalized corporate buyers are looking to flex their muscle and do some acquisitions while the number of opportunities are rising and the case for lower valuations exist.  Some will even consider buying distressed businesses facing or already in bankruptcy.  This is a complicated process that we can assist with on the buy-side or sell side.  On the other hand, hard hit would be corporate buyers are on hold until things settle down and they can focus resources on future acquisitions.
  • Financial Acquirers – Private equity groups, after a shock and pause, have slowly started to reengage their business development efforts to find smaller add-ons for their existing portfolio companies.  Some have paused to reassess outstanding offers.  Others have had to address the liquidity issues in their own portfolio companies.  Private equity groups are still sitting on record amounts of uninvested capital that we expect will be used to support existing portfolio companies as well as accelerate investing in the short run.  Family offices and independent sponsors have largely retreated waiting for sunnier days, while distressed investors have found a sense of energy and excitement to reach out for distressed deal flow.
  • Bank/Senior Lenders – Major banks are focused on executing the US government programs (SBA, PPP) as well as outstanding troubled loans.  As such, they are not able to focus on new client prospects.  We expect that to subside in the coming weeks/months.
  • Junior Capital – Subordinated debt is available from a large number of specialty finance companies, BDCs and mezzanine funds seeking to invest in sound businesses that may be facing temporary liquidity shortages.  Some are facing challenges in their own portfolios and may present opportunities for distressed investors and loan to own investors.


  • Focus on your key people inside and outside the company to achieve maximum results
  • Be transparent and communicative with key stakeholders including shareholders, board, employees, vendors, customers, industry consultants and lenders.
  • Must focus on cash and cash flow – if you run out of cash – game over
  • Access capital – draw down lines of credit pursue government relief capital (SBA, PPP) and source new capital (debt and/or equity) just in case.
  • Be strategic – acquire weaker competitors with a financial partner or merge with another industry participant to emerge stronger than before.


At a minimum, companies that survive the crisis will emerge leaner and smarter, which will help business and build value into the future.  Operators that are quick to address immediate issues and can turn to strategic analysis and opportunities may be able to acquire new customers, source new vendors, attract key hires, improve the supply chain, access strategic financing, acquire a competitor or position themselves to be acquired in the future.  CFA is equipped to assist clients in every facet of evaluating strategic alternatives in this context and execute transactions in furtherance of corporate goals.  CFA has over 60 managing directors covering 20 industry groups in 30 offices.  Seize the challenges ahead, as there’s opportunity for the strategically prepared.

Stay Healthy!