M&A Trends Coming Out of the Worst of COVID…is it Time to Sell? or No?
2019 was the seventh straight year that M&A trends recorded an all-time high in transaction volume. When 2020 began with a global pandemic that interrupted all business activities, emotional and psychological concerns emerged.
Was the coronavirus global pandemic going to halt M&A trends and activities?
Business individuals were worried that this pandemic would cause values to plummet. There was the need to address how the sudden alterations in market operation would affect M&A trends and activities.
Is this a good time to sell? Let’s find out.
Cognitive Dissonance
At the point of the COVID-19 outbreak, M&A was in what was, for the most part, a sellers’ market. Deal activity was strong, with significant deals having been closed in 2019. A worthy mention is the $74 billion mergers in the pharma sector.
Business individuals in merger and acquisition had forecasted a normal 2020. In fact, many CEOs were hoping to grow their companies through, at least one acquisition or merger activity.
When COVID-19 hit, the velocity of change reshaped reality.
Even the most successful CEOs needed to be reminded that their emotions should not cloud their cognitive position.
There is no doubt that the M&A trends the market experienced a historic decline in 2020’s first quarter. However, this was just one chapter in a story that has more important defining characteristics. Post-COVID-19, deals will begin to build up again once a baseline for valuation is established.
A More Balanced View of Reality
The main critical consideration that CEOs should not forget is, during firm acquisition, buyers use the four-quarter-period leading up to the deal’s closing to assess a firm’s performance.
This consideration gives sellers in M&A a more balanced view of reality. The decline during the first quarter of 2020 only accounts for a fraction of the rolling four-quarter period.
Businesses took a huge financial hit during 2020’s first quarter, without question. But the overall values of companies are significantly less impeded on a comparative footing.
Areas to Consider for Deal-making Post COVID-19
Even though it is too soon to tell if 2020 will be yet another year of success for M&A trends, deals continue to close, and we see progress. As you gain more information about the future and the impact COVID-19 has had on M&A trends, here are deal-making tips you need to know;
- A business with a good foundation is easy to sell
The lockdown has no doubt drastically shifted the goalposts for CEOs. The hits business have taken depend on the industries they’re in. Meanwhile, companies with solid foundations are likely to find themselves acquisition targets.
- Cash-rich funds will keep things going
Corporations with strong, balanced sheets will drive up deal activities. When lockdown restrictions get relaxed, cash-rich funds are likely to start looking for buying opportunities.
A good number of private equity houses are in strong positions to invest, considering they were sitting on a little over $2.4 trillion in mid-2019.
Conclusion
The coronavirus global pandemic has no doubt, shaken up the business world. However, CEOs should not let their emotions cloud their perception of reality. Feel free to reach out to us, if you’re looking to make a business deal.
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