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FTI: The 7 Actions You Can Take While Your Deal Is On Hold

The coronavirus pandemic hit the proverbial “pause button” on virtually all M&A deals that were on the cusp of completion. But businesses can take advantage of this hiatus to better position themselves to close their deals when markets reopen — yes, even in our new socially-distanced world.

It’s late February and you had an M&A deal that was well underway. A buyer was lined up. The projection models were all finished. The investment thesis was ironclad. You knew the value proposition of your business. Meetings with equity investors were already in the books.

A successfully executed deal was on the horizon.

Then came COVID-19, setting off what may be history’s longest “pause button” on business activity everywhere. M&A deals that were once a near certainty were suddenly in limbo. In fact, deals targeting U.S. businesses hit a five-year low during the first quarter of 2020.

But all that hard work was — is — not in vain. Eventually the markets will reopen and recover, presenting new opportunities for businesses to revisit M&A deals.

In the meantime, here are seven actions to take while things are on hold so that when the doors swing open again, and investors are anxious to start transacting, you’ll be primed to take advantage of this “bounce” period and close your deal — even in a world of social-distancing.

1. Cool Your Jets

Regardless of current market and global conditions, any business may be tempted to carry on as planned and push through the difficulty of finishing a deal. But acting on that temptation may be a signal to the overall market that a business is out of options and is desperate to sell (or buy).  Furthermore, you have the adverse selection problem. Are those who are trying to transact right now merely “bottom feeders” looking to take advantage of temporary distress? And if so, are they the right kind of buyer for your business?

If your company is thinking about plowing through to close the deal at any cost, cool your jets, take a deep breath and bide your time. Wait for the market to reopen and rebound in due course.

2. Realize It’s Not About You

We’re all in this together. Consider that the most important thing right now for investors and their families is staying healthy. That has likely relegated your transaction to a back seat where it resides with other economic concerns, including the fragile state of investors’ portfolios and job security.

As for private equity firms, they are focused on the liquidity and financial condition of their current portfolio companies. Securing financing for an M&A deal is still important but likely not a top priority at this time.

Beyond that, all deals require intense face-to-face interaction. Video chat services have their limitations, especially when it comes to investors and advisors using their webcams to negotiate multimillion-dollar deals. From the banker’s perspective, what’s the point of requesting bids in an M&A process if you can’t schedule an in-person management presentation?

As these next five actions show, there are better ways to play into “the bounce” sure to come when markets reopen.

3. Use the Pause Button for Due Diligence

Regardless of the current state of your deal, there is still some transaction work that can be done. Your team and legal advisors can continue to prepare disclosure schedules of assets to be sold, for instance. You can make progress on due diligence items that will not be affected by the pandemic. Intellectual property portfolios, human resources policies and environmental issues can still be reviewed.

Gathering documents to be included in a data room is often a time-consuming process. Using the opportunity during the pause to make a data room comprehensive and well organized with clear labels and functionality will go a long way toward making your deal run more smoothly once everyone reengages.

4. Step Back and Reassess the Strategy

The time is perfect for stepping back and considering the question: What was your company doing before the shutdown that wasn’t working? What was the “dead wood” in your strategy or your daily operations that you can, and should, let burn off? Whether you are shoring up customers, employees, financing sources or suppliers, the crisis may allow you to see your business with a fresh perspective.

5. Revisit Your Homework on Valuation

Your company will take a hit from COVID-19, but it may not cause permanent value destruction. But now is not the time to be thinking too seriously about valuation, because all the metrics, numerators and denominators are out of whack. However, you can use the pause button to further research precedent transactions in your space so that you are armed with good, normalized data for when you return to the negotiating table. This is often done quickly, but now you can seize the moment to dig into the story of each deal; e.g., why the buyers paid what they paid and what bearing that has on your deal.

6. Make a First Impression — Again

Private equity firms are working from home just like everyone else, but they are still monitoring investment opportunities. While they may not have the ability to jump on a plane to visit your company, they probably do have the time and attention to read your teaser. Keep in mind, there will be strong demand for new investment opportunities when markets reopen. Investors will want to revisit opportunities with quality companies once the business climate improves.

7. Participate in the Process of Deal-Making Innovation

When the markets do reopen, we won’t return to the way things have always been done. The same can be said about the business world and the way deals get done. Because we don’t know either the “what” or the “when” of the new normal, market participants are already trying to innovate ways of getting deals done remotely under the assumption that it may be a long time before we can get back to our offices on a regular basis. Be prepared to witness innovations in deal-making activity that modify or even dispense of some of the time-honored “analog” traditions of the M&A transaction process, such as the daylong, in-person management presentation. Be thinking about ways you can work with your investment banker to present the value proposition of your company to investors and manage the transaction process in a socially distanced world.

The M&A markets are not going away. Some great businesses are still out there. When the markets reopen, investors will have a strong appetite for closing deals, seeking new ones and investing in advantageous opportunities — that’s your bounce. With a thoughtful approach, you can use this extraordinary time to sharpen your messaging and prepare for a better outcome.


Compliments of FTI Consulting – a member of the EACCNY.