The Virus Effect on M&A | The Corona Correction | Refinitiv
Welcome to the Corona Correction series in association with Refinitiv on your host, Roger Hirst, Cornelia Andersson analyzes trends in global M&A. I wanted to ask her how this segment of the market was being affected, is price action providing opportunities, where the general outage creating a bottleneck for both the initiation and completion of deals. While deal makers started the year with a very positive outlook expecting increased activity in both M&A and capital raising deals, that is now starting to change. And we're also seeing a real divergence in investor behavior. On the one hand, we have a flight to safety, where investors are looking to put capital to work in really safe assets. On the other hand, we have a much more interesting trend, which is one where market disturbances and global turmoil creates opportunities. It doesn't create opportunities just for any kind of investor, but for those that have the capital and the acumen to be able to execute under challenging market conditions. One area where we'll see an impact is on the ability to execute transactions. In the first area where this will come into play is deal origination. Large M&A deals are typically the result of a series of face to face meetings, often over a significant period of time. Then moving on and looking at the due diligence process, which is typically the next step in an M&A transaction. There are some real challenges to being able to execute an efficient due diligence process as the results of the spread of Corona. Then looking at the execution of the deal itself and particularly the financing side, there will be an impact both to the cost of capital and the ability to access capital market for certain types of acquirers and issuers. Lastly, if we look at structuring the deal terms, we're going to see some interesting conversations and probably some challenging negotiations, particularly around clauses such as 'adverse material changes'. So it's likely that the impact of the Coronavirus and M&A and capital raising, is a story of a delayed effect, where we'll see activity pushed back to the last two quarters of the year and deal makers and issues really catching up on lost time as we move into the second half of the year. If the situation worsens, then it's likely that we will see a reduced volume of activity across the board. So Cornelia does see this environment providing a few opportunities for those who are prepared and nimble. But it sounds like this will be far outweighed by the impact on face to face deal-making, issues with the legal process, and ultimately the difficulty in financing deals in the capital markets in the prolonged period of lockdown. Although M&A has taken something of a backseat to private equity and venture capital in recent years, these businesses will also be facing many of the same issues, and volumes will be underwhelming even after peak fear has passed. Therefore, there will be a significant backlog of business building up into the second half of 2020. We'll see tomorrow with another update.