Written by Bryan Haynes
While COVID-19 caused a dramatic slowdown to the deal-making boom of the last several years, we expect to see a resurgence in M&A activity in Canada and globally. Reuters reported that, "a deal frenzy in September led to a record third quarter with more than $1 trillion worth of transactions around the world, mostly focused on coronavirus-resilient sectors such as technology and healthcare."
I recently moderated a panel on How to Get a Deal Done During COVID-19 at the Business Transitions Forum West Conference 2020, which looked at how buyers and sellers are adapting to the pandemic environment and what we can expect in the months ahead.
I was joined by:
- Julie Afanasiff, Partner at Sequeira Partners in Edmonton. Sequeira Partners is one of western Canada’s largest boutique advisory firms serving clients in Alberta, British Columbia and Saskatchewan.
- Duncan Adams, Vice President at TriWest in the investment group in Calgary. TriWest is one of Canada’s leading private equity firms, having raised over $1.25 billion in committed capital through five funds.
Here are the key takeaways from the panel discussion.
Deal-Making in a Non Face-to-Face Environment
- Video calls are a new fact of life in M&A and technology is playing a larger role than ever. This has its limitations, but does allow for more frequent touch points throughout the deal process.
- Buyers and sellers are tapping into their networks to get to know as much as they can about potential partners.
- Nothing replaces an in-person meeting for building rapport, but technology helps bridge the gap when people cannot meet, especially if deals are cross-border.
- Video calls can reveal a lot about a person's character, motivations and integrity if they are done often and on different topics.
Buyers and Valuation
- It is not surprising to see a divergence between what buyers and sellers are expecting in the pandemic environment. But now there is even more of a focus on a company's future performance.
- Buyers need to go into a deal being very prepared. This means understanding the business, who the customers are, the outlook for the customers, where the growth is going forward, and how a business can react and adapt to uncertainty.
- Buyers and sellers are having to get creative. Deals will likely get more structured in nature. This can include earn-outs, structure on how capital is being injected (such as preferred equity structures, mezzanine debt).
- In most deals due diligence is almost entirely virtual. Technology is being used earlier on in deal processes and there is more regular contact. Video, and even drones, are being used for site visits.
- There is a lot of creativity and adaptation in terms of what due diligence looks like now. Business networks are being tapped into on cross-border deals to help with on-the-ground due diligence. In some cross-border deals, consultants are being hired to assist.
- Some areas have taken on a new importance, such as supply chains. Having North American and global supply chains introduces a new level of risk and this needs to be evaluated. Exposure needs to be assessed with a close eye on specific locations and how vulnerable a company's supply chain may be.
Timing and Deal Momentum
- For the most part, time is to the benefit of the buyer right now. They are able to see how a company is performing as the economy recovers, if it is hitting its budgets, and if margins are starting to come back.
- There are competitive processes going on—in the right sectors and if the seller is well prepared. Good, solid businesses that have done well during the pandemic can still attract capital, and there is a lot of capital waiting to be deployed.
- For deals that began before the onset of the pandemic, it can be challenging to keep the momentum going. Setting hard or tangible milestones can help to keep a deal moving forward.
If you have any questions about how to get deals done during COVID-19, please contact a member of the Bennett Jones Mergers & Acquisitions team.