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Distressed M&A

M&A in the wake of Covid-19: strategies for a healthy business

Several months into this global pandemic and businesses are facing a pivotal moment. Government reinforcement from bailouts and support schemes has been quick to land, but despite this injection of liquidity, the global economy will shrink by 5.2 per cent this year according to the World Bank, triggering the deepest recession since the Second World War. To avoid becoming a casualty of the pandemic, businesses must instigate a robust evaluation of their own operations to capitalise on the opportunities available.

Thorough company health checks are always a good idea, but with Covid-19 reshaping the business world, they are more important than ever.“To have real transformation you need to be rigorous day after day,”points out Christophe François, Senior Partner at McKinsey & Company. Although it has been a slow half year for the M&A market, experts forecast significant accelerated investment opportunities prompted by a wave of distressed M&A.

During the lockdown dealmaking required creativity, with site visits conducted by drone and IPO roadshows done virtually. Other challenges have been harder to manage, though, and businesses have had to deal with interrupted supply chains, demand issues and rapidly changing government support and restrictions. However, as Ai Ai Wong, Global Head of Baker McKenzie’s Transactional Practice Group and Chair of Asia Pacific region, notes:“Nothing is going to stop people making deals if they are determined, and all the more so when it becomes defensive.”

Activity is being driven by a bid to increase balance sheets, shore up portfolios, create resilience and take advantage of attractive deals, and it is being facilitated by end-to-end digitalisation. Fuelled by significant liquidity in the market, companies are focusing on new partnerships and business structures to weather this storm. Low interest rates and availability of funds in the market means that businesses are in a position to pounce, with private equity and family companies predicted to fare well.

“Boards are considering transformative M&A,” says Nick Bryans, Partner in Baker McKenzie’s London M&A team.“They are offloading assets to focus on core operations, and ridding themselves of assets performing badly.” As businesses attempt to recover from the crisis, there is a golden opportunity to go to market, raise funds, bolster portfolios and mitigate the effects of the pandemic. However, this window is closing. As François explains: “It’s winners that make bold moves in portfolio investments. It’s time to make bold moves.”

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