We are at the very early stages of feeling the impact that the coronavirus will have on mergers and acquisitions (M&A). 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.