Webinar Key takeaways: Preparing for Life ‘Beyond the Virus’: Act Now: Preparing to Navigate M&A Post-Crisis

Webinar Key takeaways: Preparing for Life ‘Beyond the Virus’: Act Now: Preparing to Navigate M&A Post-Crisis

Here are our conclusions and takeaways from this week’s webinar:

Collaboration is likely to increase, driving innovation and alliances, partnerships and joint ventures…

  • Closing M&A transactions will become much more difficult until major uncertainties resolve
    • Striking a mutually acceptable price difficult in “normal times”
    • New uncertainties on top of “normal” uncertainties will dramatically shrink the Zone of Potential Agreement in deal negotiations.
  • Reduced restrictions on sharing assets, IP, intelligence and knowledge with “near competitors”
    • Corporate executives will be more motivated to allow collaboration particularly aimed at customer “solutions;” particularly true due to difficulty of negotiating M&A transactions
    • Regulators and governments likely to lift legal barriers to collaboration, particularly to address virus control/eradication or the economic effects of shutdowns
  • These collaborations are likely to drive innovative products and services AND business models
    • Savvy executives will experiment with new collaborative business models to deliver new products and services
    • Executives will become less parochial, looking outside of own industries for collaborative business-model ideas
    • Some models will involve “coopetition” – partnership with competitors
    • Some models will cut across industries, sectors and geographies in new ways

Increased pressure on firms to divest non0core and underperforming units/assets

  • Skilled management time is likely to be the most critical bottleneck for firms exiting the coronavirus shutdowns; there will simply not be enough management attention to “do everything”
  • Funding, too, may be limited
  • Some geographies, particularly far from corporate core operations, may be seen as riskier and less attractive for a significant length of time
  • Boards will pressure management to focus more tightly

Executives must (and ought to) consider corporate social responsibility (CSR) in planning and prioritisation

  • Public and regulatory expectations
  • “Doing the right things”

Executives, perhaps as industry groups, should enter into a dialogue with governments and regulators regarding relaxing regulatory barriers

  • Some regulations could threaten coronavirus solutions or economic recovery
  • Prudent relaxation of requirement, with sound oversight, could unleash growth and innovation of great benefit to societies and economies

 

  BaseUpside Downside
Henryk ⁃ Current concern includes the capability to raise more capital, as pharma industry has a large requirement for cash to fund the R&D ⁃ A lot of alliances and exchanges involve little cash transaction and is able to be set up and deliver results as quickly as possible. These partnerships may be previously unavailable due to either competitive and corporate-specific reasons, while CSR has enabled the partnerships to come through in a unique way. E.g. JV, Strategic Partnership over buyout⁃ Security of supply would be the focus. Businesses buying the whole supply chain experience large exposure to risks
David ⁃ Delays in construction projects at the moment, but not so bad in the base case. Delays mainly come from the supply chain and output in factoies, some of which have been closed down ⁃ The revenue base (price of the energy) is experiencing a sharp downturn. Businesses are shutting down to reduce the output in response to the falling industrial demand, which is further exacerbated by the oil price war between Saudi and Russia⁃ Delays due to supply chain disruption will recover quickly⁃ Would likely start to see some devaluation in some of the projects, depending on how regulators will respond to the situation. The flexibility of government's response will be crucial
Robin⁃ A great challenge to getting a deal done is to come to an agreement on the company’s underlying value. i.e. A meeting of the minds on the value of the transaction. The impact may be both positive and negative. Trying to figure out what the business will look like based on last year's performance will be exceptionally difficult ⁃ Partnerships and collaboration falls out inevitably: Partly driven by technology; Partly driven by the uncertainty surrounding the value, hence the commercial capability delivered between partners ⁃ Risk assessment within the market will be a challenge, as asset re-evaluation takes place for financially distressed companies. But for the truly distressed assets, people will likely spend more time waiting as the risk appetite plummets. Equally, the sellers will have to choose the buyers more carefully, making the divesture longer to come out⁃ People may discount the current periods faster, making the deal process more efficient. The focus on strategy will also likely to be stronger⁃ Far more dramatic winners and losers. Hence a lot more consolidation in the industries ⁃ Some new entrants/innovations may come in as people adjust to the 'new world'

 

Twist: How does different rates of recovery across global economies influence the M&A landscape?

  • Differentiation in recovery is inevitable. Emerging markets will really struggle as they don’t have the sufficient capability within healthcare and infrastructure to manage the situation effectively. For any global business, it will be hard to engage with those markets. The role of technology will become paramount in both supply chain security and having access to the customers.
  • Some markets may present opportunities depending on changes in the regulatory environment
  • The risk component in certain countries will be significantly higher. While a really distressed assets within those markets (lagging behind in economic recovery) with appropriate valuation would still be worth considering.

Q/A:

  1. How is China likely to emerge from the situation?
    1. Back to previous growth level due to the fundamental reasons that people would like to invest in the market: fast growth, market size. Although likely to be affected in the short term due to political factors
    2. If China is able to control the virus and being honest about their approach, the economy will likely to recover faster.
    3. China will seize the opportunity to get first to market. Some aggressive tactics in gaining market share in different industries may be seen.
  2. Will the EU continue to exist as it stands now?
    1. Although there are challenges, the concept of the EU is bigger than coronavirus
    2. The virus is a major short-term shock. Some policies may be realigned but the bloc will survive.
    3. Southern European economies will deal with the crisis in a different way. But the purpose of the EU’s existence stays valid and may become stronger as a result

Poll result:

67% of the participants believe that the base case scenario is most likely to occur, while upside and downside cases gained 19% and 14% support respectively.