COVID-19 cold water on hot market

Corporate deals have paused – but aren’t dead

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While COVID-19 has sent shock waves through the economy, experts predict that the corporate finance world will survive the blast relatively unscathed after an exceptional five-year run.

“The M&A market was the hottest it had ever been and COVID-19 made it take a bit of a pause,” said Andrew Kemper, partner at Capital West.

While corporate finance deals have certainly slowed, they haven’t come to a grinding halt.

 Paul Tuzi, CEO of Zynik Manufacturing Group agreed with Kemper that many deals have simply been put on hold as buyers and sellers wait to see what things look like after the pandemic is over.

The demand for acquiring companies has not disappeared, but rather is paused and will eventually come back in the form of greater deal value.

Nearly all companies that had embarked on a formal sale process have put those plans on hold. Instead, they are either retrenching and focusing resources on existing operations or waiting to complete the transaction later because of the valuation uncertainty in the market, according to Iain Mant, M&A lawyer with Fasken. 

However, not every deal has been thwarted. Deals to acquire a strategic asset or technology are generally still proceeding, said Mant.

“Transactions where there’s a natural strategic synergy between the buyer and seller that is unrelated to the existing economic uncertainty caused by Covid-19 – those transactions still seem to be occurring across a range of sectors where one entity recognizes that someone’s [asset] is strategic to their future and their operations.” 

With most of the M&A market on hold, companies that were interested in selling are not reaching out to potential buyers. This could result in a very active market once fears surrounding the pandemic are put to bed. During the global financial crisis in 2009, Canwest had just one acquisition deal but followed with 12 in 2010. This could be an indication of what we can expect to happen after the COVID-19 pandemic subsides, according to Kemper.

Tuzi agreed, saying there is often an influx of deals after a recession.

But with many forecasting a technical recession over the next two quarters, the fate of businesses now up for sale is not a concern for Kemper or Mant, who both say there is a lot of capital in the market ready to be deployed.

Tuzi added that potential investors are waiting for things to return to some sense of normal.

While the M&A market was hot before the COVID-19 crisis, not all deals were experiencing the same growth.

Tuzi distinguishes between deals valued above $10 million and those below that mark.

His experience has been that lower-value deals remain relatively steady and consistent while larger value deals attract more buyers and garner greater deal value growth, particularly for transactions above $10 million.