COVID-19 impact

While the COVID-19 pandemic paralysed M&A worldwide earlier this year, there seems to now be some light at the end of the tunnel with countries and businesses beginning to reopen in an effort to breathe life back into both global and local economies.

There is no doubt that there have been, and will be, winners and losers because of coronavirus. Certain sectors have benefitted from the new ways to everyday life (particularly those in the healthcare, IT and media sectors), but there is no question that many businesses have suffered, especially those not able to quickly adapt.

Unfortunately, this means a lot of businesses will collapse in the wake of COVID-19 (in addition to those that already have). However, we are also likely see an increase in both consolidation and distressed M&A as companies less affected seek to take advantage of others looking for a quick exit. On the other hand, well-run businesses in resilient markets will be in a stronger position to negotiate higher valuations.

Empirical data shows that the winners in the aftermath of the 2008 financial crisis were those that acquired “quality assets”. Similarly, economic downturns such as the one we find ourselves now in will present a raft of opportunities for those that can identify and capitalise on the right ones. For example, it has been said that corporates and financial investors will likely prioritise technology investments in response to accelerated digitisation brought about by COVID-19.

While the future is ultimately dependent on whether there are more waves of the virus, and how well-equipped economies and businesses are to react, many commentators are predicting M&A activity to pick up again in the latter half of 2020 and next year.  However, there will be other factors to consider too such as Brexit and the impending election in the USA.

How M&A may be affected going forwards

Deal structure and valuation

With greater impetus being placed companies to manage liquidity in the face of uncertainty, it is likely that we will see an increase the proportion of share consideration/earn-outs versus upfront cash.  Earn-outs are likely to increase as popularity, as they will provide a means to sellers to achieve an element of cash up-front, but to realise more value in the future when market conditions stabilise, while giving buyers protection in the event things do not improve.

Purchase price adjustment mechanisms

Until recently, locked-box accounts have been the preferred choice of purchase price adjustment mechanism. However, it is likely that we will see an increased use of completion accounts as buyers seek to deduce targets’ new “normal” levels of working capital.

Due diligence

First and foremost, buyers will want to understand how targets will have been affected by COVID-19. Not only does this mean understanding the impact on the financial condition of the target in question, but buyers will also have an increased focus on the areas of the business that have been affected by the virus. People and HR (furloughing and redundancies), finance (government support packages), and IT (increased levels of home working) will be scrutinised.

Additionally, assembling data room documents and arranging site visits and meetings with management will, and have already, become more challenging following COVID-19. There is a good chance this could mean due diligence processes could take longer than one would expect previously. On the other hand, if there is an increase in distressed deals, one would expect processes to get wrapped up quicker.

Warranties & Indemnities

Buyers will consider whether there needs to be any COVID-19 specific warranties to ensure they are protected against any risks resulting from the virus. From the seller’s perspective, they will want to ensure they warrant all possible consequences of the virus and obtain W&I insurance as necessary for cover. They will need to be mindful, however, that certain insurers are attempting to exclude COVID-19 from their policies to mitigate risk.

Corporate Finance post-virus

As we move forward post-virus, the world of corporate finance ‘deal doing’ is likely to be very different. The priorities and requirements of some business owners will have changed and the traditional “hands on” advisory service model may not suit all. Here at Bluebox, we have recently launched “Bluebox Velocity” to help bridge this gap.

Bluebox Velocity provides business owners looking to sell their business, raise funds, or buy a business, with menu-based corporate finance products and packages. There are no tie-ins, exclusivity clauses or monthly fee commitments, giving customers flexibility to navigate their M&A processes on their own terms. Of course, some business owners will want, need, or prefer the traditional corporate finance approach, in which case Bluebox is here to help as always!

To find out more about Bluebox Velocity, please visit