Keeping a Deal Alive in Challenging Times

Posted on the 5 May 2020

Keeping a Deal Alive in Challenging Times

Peter Glenton is Partner at Newcastle-based advisory firm Ryecroft Glenton. Peter read law at Oxford University and practiced as a corporate finance solicitor with international law firm Allen & Overy before qualifying as a chartered accountant and a financial adviser with RG. His experience of working across 3 different professions gives him a broad perspective and he advises clients across a wide spectrum of accounting, tax, wealth management and corporate finance matters.

In these challenging and uncertain times there is one thing upon which we can all agree — things will never be the same again. For those businesses and business owners that were contemplating transactions pre COVID-19 taking hold that means a lot of difficult questions to be answered.

Many merger and acquisition transactions – where one business is being bought by another business – have gone on hold, hopefully to return when things return to some degree of normality. Of course, that will depend on many things and every situation will be different.

Variables affecting the transactions can include: the sector where some will be more immune to the impact of COVID-19 than others (for example energy, technology and healthcare should be more robust in general than retail or people services businesses); the ability of the buyer to buy and their continued appetite to buy; and the impact of COVID-19 on the trading of the selling business and how long it will take to return to some degree of normality. 

When considering “How to Keep a Deal Alive in Challenging Times” there are several key matters to consider, which I've listed in detail below. 

1. BEING CLEAR ON THE LEVEL OF COMMITMENT

What stage had discussions reached before being put on hold? What was the level of interaction and commitment between parties? Was there an agreed “Heads of Terms” and had the due diligence process commenced? The further advanced the process and the respective commitment from both parties the easier it will be to maintain some momentum and dialogue through these challenging times. 

2. BEING HONEST AND TRANSPARENT ABOUT THE REASON FOR DELAY 

What were the reasons for calling a halt to proceedings? Was the delay very directly linked to the uncertainty and concern over the impact of COVID-19, allowing both parties to focus on the here and now without the distraction of an M&A process – or were there other issues that were causing the buyer some concern? It is important for all parties to be honest and transparent about the reasons for any delay because only then can a plan be agreed in terms of how to resurrect discussions and the process in the future. 

3. MAINTAINING CONTACT 

Don’t let the relationships developed turn cold – it would be impossible to overestimate the power of relationship to overcome challenges in a deal environment. 

Maintaining contact with your counterparty (whether buyer or seller) now could be a critical factor in determining whether or not you achieve your desired outcome in due course. It would be appropriate to keep them informed of the impact of COVID-19 on your business and, also to explore ways in which you might be able to help each other during the crisis. This could cement already strong relationships. 

4. ENSURING CLARITY ON THE "WHEN, HOW AND WHAT" QUESTIONS 

When and how will the hiatus end? Is there an agreement between parties at to what happens next and when? 

The ability to resurrect discussions and the most appropriate timing to do so will depend on how badly the respective businesses have been impacted by the crisis. At one end of the spectrum this could mean complete shutdowns, long term negative impacts on confidence and customer demand and a slow return to “normal” – at the other end of the spectrum it could mean a short-term blip and a speedy return to “normal”. 

What needs to happen for discussions and the process to begin again from your point of view and from the point of view of your counterparty for example will a buyer require some period of post lockdown trading results? Clarity is needed from both sides. 

Are things likely to have changed? What has been the impact of Covid-19 on the trading of the seller’s business, will the buyer be looking for a revision to price and structure, and if so, on what basis? 

5. RECOGNISING HOW THE CIRCUMSTANCES OF EACH PARTY COULD IMPACT THE STRENGTH/WEAKNESS OF YOUR POSITION 

It is important to recognise that respective post crisis attitudes to the deal envisaged pre crisis may depend on the specific circumstances of each party for example a buyer’s desire and/or need to buy and a seller’s desire and/or need to sell. If there is any lack of balance in the relationship, then one suspects that could mean challenges for the weaker counterparty.

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