Lockdown and deal-making

 

In almost every conversation I have with a prospective seller or buyer, I am asked about the impact of Covid-19 and lockdown on deal-making. People are concerned that buyers will have disappeared and that the lockdown impact on their business will make it unsellable.

Of course, in times like these, there are no simple answers, but it goes something like this: Where deals were very close to completion at the time of the lockdown, with term sheets signed and legals almost complete, we have seen very little impact on the commitment from both parties.  However, we have had a timing impact as everything has just taken longer to conclude, compared to what is “normal”. The deals which have been most severely impacted are those that were a bit further out from completion, perhaps where the acquirer had not really made that internal commitment that is required for a successful deal, or where the acquirer’s business portfolio was severely impacted. For example, one of our acquirers was heavily invested in a truck hire business – this meant they really needed to keep their “powder dry” to see their business through a tough patch, and were not able to direct their funds toward new acquisitions.

The positive story comes in respect of those clients’ businesses which we had not yet approached the market on. In these cases, we could adjust our strategy and target a slightly different set of acquirers, a group of acquirers who are in fact quite bullish about the current environment. The associated deal structures lean towards growth rather than a quick exit, but this can often be to the seller’s advantage as they bring on a partner to assist with working capital and preparing for real growth as the lockdown eases and the world economy turns the corner.

At Deal Leaders, we have a number of excellent quality businesses which we have introduced to the market and have recently been recognised by acquirers as one of the few advisors with good quality assets “on the books”. We are currently concluding a deal worth over R200m (for 50% of our client’s company) where there has been no adverse effect from the lockdown. If anything, the new partnership has been able to deliver significant new opportunities rather than seeing any negative impact. In another two businesses which have been taken to market in the past month, we have received offers of over R400m for one and over R850m for the other. These are at very favourable valuations for the sellers and promise to further demonstrate the existence of acquirers looking for solid businesses in times like these.

Warm Regards, 
Rick Grantham