As the coronavirus (COVID-19) pandemic continues to spread across the globe, companies and transaction participants are grappling with the increased risk and uncertainty posed by the virus. This is likely to have a significant impact on M&A sentiment and deal negotiations and poses the question:
What should dealmakers and transaction participants in Australia be doing differently in these market conditions?
With over 50 years of accumulated experience at Barclay Pearce Capital has provided some notes on what to consider when navigating the current M&A environment.
Increased Due Diligence Focus
In this uncertain environment, the need to conduct thoughtful, comprehensive diligence becomes paramount. Buyers should focus on the impact of coronavirus on a company’s fundamentals including its workforce and ability to function remotely, supply chain, go-to-market strategy, capital expenditures, the location of facilities, financial condition, ability to service debt, the strength and financial condition of customers, ability to control operating cost and many other factors.
Valuation
The uncertainty around the short and long-term impact of COVID-19 on businesses can pose many questions around valuations and can make the task extremely challenging. Does historical financial information accurately reflect a target that may now have a disrupted supply chain, unusual inventory levels and distorted accounts receivable and payable? Do the financial projections and their underlying assumptions still make sense?
Financing
The current market conditions have created many challenges of issuing equity, and thus making the evaluation and execution of alternative financing options a critical priority for many businesses. For strategic acquirers utilising third-party financing, there may be significant challenges coming to terms with lenders given the current landscape. Lenders will have similar diligence concerns but will likely be more risk-averse and may increase their premium on debt. Consequently, raising debt or equity could be particularly challenging during this period of uncertainty.
Barclay Pearce Capital is highly experienced and can support businesses to review your capital structure and implement a wide range of restructuring and financing solutions that are tailored to your needs.
The Transaction Environment
The significant and sudden decline in market values and uncertainty in business operations may lead some companies to consider sales due to operational challenges and financial pressures. Conversely, vulnerable companies should prepare for this by reviewing their takeover defenses, assembling a team of experienced corporate advisors and staying close to key shareholders.
The need for an experienced transaction adviser is paramount during these volatile and uncertain times. With over 50 years accumulated experience Barclay Pearce Capital can play an important role in defining the framework and structure of the deal, conducting robust due diligence, financial modelling and valuations as well as a flexible mindset towards deal negotiation and execution. Each deal and transaction requires a fact-based approach and customised solution. Barclay Pearce’s team of M&A professionals offer guidance at every stage of the business deal, providing value added solutions along with timely identification and resolution of any roadblocks.
As each day brings increased uncertainty amongst business owners now is the perfect time to start having these discussions with a member of the BPC team. Having a discussion now will not only give you the opportunity to get ahead of the market but it will also show that you are committed to making your business strive whilst many other businesses have halted to a stop.
If you're a business looking to navigate these difficult times, contact us for a short Exploration Call with our team.
