M&A during COVID-19

At the beginning of the year, I wrote about Covid-19 and the expected outcome for the M&A market. With this article, I want to give my opinion on what is happening with the market of business sales and acquisitions during this crisis. Further, I also want to see how M&A advisors can position themselves and how our activity could change. What can we learn professionally from this pandemic? How can we change our processes, if necessary?

Contents of this article

The impact on the European M&A market

Which industries are most affected?

Lessons learned and potential benefits

How to cope with the new market situation?

The impact on the European M&A market

Based on what I hear and see in the market, lower M&A activity was to be expected. I have just looked at the 2020 Q3 Mergermarket report which indicates a decrease of around 20% for Europe for the larger transactions. This level of decrease would actually be higher if technology deals were not included. Europe still does relatively well. In the USA and Asia, the decrease in transaction levels is even higher.

For our market segment, where we are dealing mostly with transactions up to 50 million euros, I expect the impact to be even higher. These smaller transactions normally have less professional support. Without the drive of these professionals, processes might get stuck at an earlier stage. Hence, it is to be expected that the decrease in these markets is more severe than with the larger transactions.

At CFIE, over the last few months, we have seen new companies, mainly buyers but also some sellers, come back to us and we are starting new projects again. This might be a sign that the worst is over. If not, at least there will be some wisdom gained from this situation.

Input from the M&A community regarding the effect of the COVID-19 virus on the European M&A market

Once again, I want to stress that the effect of the virus on the health of especially the elderly or sick people is what matters most. In that sense, it might not be so concerning if we as M&A advisors, need to take some steps back and spend less time working for a few weeks or months. At the moment, I don’t see such an impact on most of my clients. However, how long will this last? What is your current experience in your daily jobs and the feedback of your clients about their M&A plans?

Which industries are most affected?

The only market where there is an enormous increase in the number of transactions is the Technology space. This is especially the case in the European market. Mergermarket indicates a 575% increase in the total transaction volume compared to the previous year in the European Technology markets.

We are also active in Healthcare (distribution) and we see so much business activity in this market that there is hardly time for M&A, especially in the first six months of the year. The chemical market is not affected as much. In IT, we see delays in project times only for the moment. No real cancellations yet. What is your view on the industries that are affected?

Wisdom gained and potential benefits

What are the most important lessons learned? Can there be potential benefits?
In general, one of the most remarkable items we see is of course less (air) travel. This is a crucial aspect for the M&A market. Some of our international, mainly US, clients would normally take a plane and visit 3 to 5 potential targets in Europe. This has completely come to a stop. Now, we are asking prospects to make short company videos of their offices and factories. In practice, this works quite well. Of course, it is different than a personal visit, but these videos give a first good indication of how a company is set-up.

Video conferencing has increased a lot too, as in all in other industries. In my opinion, video conferencing is a good tool for the M&A process. Personal visits are important and crucial during transactions but some of these can be replaced by video conferencing.

Digitization of processes has risen further where this was already quite advanced in the M&A market. Many articles have already been written on the topic of digitization in the M&A processes. I will not try to repeat that here. However, it is clear that Covid-19 will drive the digitization of business sales further.

Even though the first vaccine seems near, I expect it to take quite some time before air travel is fully possible again. This will probably mean further delays in transactions and a longer process in general. However, we can also learn that the earlier parts of the process, especially in cross-border transactions, can be completed with less travel.

How to cope with the new market situation?

I think we will need to get used to longer project times as long as Covid-19 is still active. Also, I suspect there will be less M&A activity for some time to come. This is mainly due to large swings in results which make it more difficult to get a clear agreement on a company value between a willing buyer and seller.

However, in my opinion, there is also good news. The best thing is that prospects think more clearly before entering the M&A market. If a company wants to start an acquisition, it must be profoundly serious, otherwise, they will not enter the arena. It is better if prospects check their priorities and only become active if there is a serious interest in an M&A project and a clear strategic plan.

As an advisor: What are your experiences with clients and projects and what do you expect during the remainder of the Covid-19 crisis?

As a potential seller: Are you planning on starting a project or do you plan to delay your business sale? (Maybe just reply personally to me only).

As a potential buyer: Will you start a project, or will you wait until Covid-19 is fully resolved?