We are at the very early stages of feeling the impact that the coronavirus will have on mergers and acquisitions. With cities being quarantined, and companies being forced to scale back operations indefinitely, M&A transactions, including accounts receivable management (ARM) M&A, are at risk of not closing on time, being restructured, or being postponed indefinitely. It is safe to say the short-term impact will be significant. Longer term, the M&A landscape will return to normalcy, but it will take time.
Here are some things to take into consideration right now if you are currently contemplating buying or selling a business:
- Office closures and travel restrictions will slow down the due diligence process and access to important data as critical staff members, attorneys, CPAs, and brokers start working remotely.
- Site visits, client meetings, and in-person management meetings will be postponed or canceled.
- Most buyers will attempt to renegotiate deal terms that were previously agreed to. Pricing, structure, timings, covenants, closing conditions, and all terms are being re-evaluated.
- Earn-outs will be utilized with extended timeframes to allow buyers and sellers to share transaction risks and reward.
- Lawyers will evaluate definitions such as “material adverse effect,” “force majeure”, and requirements upon sellers to operate “in the ordinary course of business.”
- Transaction closings will be delayed indefinitely.
- Travel restrictions and availability will prevent or delay many new deals from getting started.
- Management presentations will move online or are being delayed indefinitely.
- Due diligence efforts will start to include the impact of coronavirus on the seller’s workforce and its ability to operate remotely.
- It will be tricky for buyers to evaluate worst case scenarios and their own future exit strategies.
- For buyers using third-party financing, there will be vital changes to lending terms, covenants, and closing conditions.
- Uncertainty about the impact of coronavirus on performance will impact business valuations.
- With no vaccine on the markets, things may get worse before they get better.
At Kaulkin Ginsberg, we believe the long-term impact of coronavirus on M&A activity in the ARM industry will be minimal as the fundamentals of the companies, the clients they service, and the industry overall are still strong; however, transactions will be severely impacted in the short term.