The global COVID-19 pandemic has created widespread economic uncertainty. As the world continues to fight against the health crisis that has shaped 2020 to-date, commercial activity in many sectors has all but stopped. The short-term impact will be severe, with many businesses struggling to sustain themselves. However, while the depth and duration of this crisis is uncertain, it will pass.
We have all heard the Chinese word for crisis is made up of two symbols meaning danger and opportunity. There is no doubt that at this time of uncertainty there is great danger for business. But equally, the crisis presents an opportunity to reassess the strategic direction of the business and identify new ways of operating.
If we look back to shocks like the global financial crisis in 2008-10, it presented an opportunity for businesses who had the capital and appetite to make bold strategic moves. Some acquired high-quality assets which gave them the platform to faster growth and greater market share in the upturn.
After a period of strong economic growth, many companies with robust balance sheets and ambitious horizons might see the current decline as an opportunity to strategically position their business for the longer-term, engaging in transformation, consolidation, diversification or strategic alliances.
Most business owners are expecting a U-shaped recovery — a period of slower economic activity extending into 2021, before recovery takes hold. Some are more optimistic, hoping for a V-shaped recovery by early next year. Whatever the case, what is sure is that M&A opportunities on the buy side will emerge as a result of this crisis.
When the recovery does emerge, it is important that you are best-placed to avail of these opportunities. We identify below the key considerations in respect of acquiring a business in a post-COVID-19 setting:
It is vital to plan ahead and anticipate what’s next for your business and industry. This may have changed as a result of COVID-19 and it is worth revisiting your previous plans. Your vision for the future should inform your M&A strategy, providing you with clear objectives and goals. This may be to enhance your digital transformation, to diversify into new markets or activities or to consolidate your position through the acquisition of high-quality businesses and assets.
It is important to critically assess each acquisition opportunity against your own strategic objectives.
Due to the impact of financial distress you may come across acquisition opportunities at attractive valuations. However, you must apply the same principles to acquiring a business as you would in ordinary circumstances: Does the business enhance your offering? Is the business a sound strategic and operational fit?
As a general rule of thumb, you should critically consider whether you see the business as a viable acquisition target before taking into account any potential price discounts, which may have enhanced its appeal.
It is imperative that you fully understand the impact that the COVID-19 crisis will have on the future sustainability of the target business. Key questions to consider specific to COVID-19 are: