Author : Naveen Prasad, Founder & MD at Group Agilis
July 02, 2020
All of us who had welcomed 2020 with lots of hope and spirit were caught off-guarded by the novel Corona Virus – 2019 (COVID19). While most viruses are responsible for common cold and flu, the COVID19 declared as a pandemic by the World Health Organization (WHO) has all set to disrupt both health and global wealth!
The global equity indices of MSCI World, S&P 500, and STOXX Europe 600 have been wavering within short period time in a matter of weeks with a record high on February 19, 2020 to a low on March 18, 2020 and rising back again in June-2020.
The impact on M&A landscape is no exception with deals values down by more than 30% compared to previous years which has brought a definite strategy switch for addressing distressed assets in the wake of COVID -19. The last quarter inscribed a whopping $2.1 trillion distress debt globally, especially in Asia with India and China leading the tally. Even though there is a drastic surge in corporate debt distress funds in the world, the fund managers; especially in distress debt is on high exigency.
As in the past, M&A landscape has been time tested and endured the past economic crisis such as Lehman Brothers collapse in 2008, dot-com bubble in 2000-2002 and the Great Recession of 2009. Ironically, the anticipated global M&A volume changes in 2020 is up by +2% globally providing a positive outlook.
Many of the investment firm whose diversified funds are battered by falling oil prices and economic fall-out because of the pandemic. We can't set aside the quadrupled debt of US economy without any segment discrimination. The investment in segments like financial services, oil, gas and consumable fuels, hotels, restaurants and leisure industries are wiped out during this period. So the M&A has to be structured based on the turnaround time and special situations. Since all the segments are sabotaged because of non-revenue and COVID being the common cause, M&A pose an opportunity and threat in the same platter.
The exit parameters have to be reworked based on an emergency situation. The distressed debt trading and control will be challenging to the policy makers. The rising cost and hiccups in logistics will definitely add on to the plight. But the opportunity is big and the landscape of operations have widened. Rather than pumping investment to distress funds for profit or stakes, a winner should evaluate and explore the revenue generation option at a rock-bottom cost with the help of naive technology based business operations.
Winston Churchill quoted “There is nothing wrong in change … if it is in the right direction.” So the forward-thinking leader’s positive mindset could set the stage on how to play effectively. Effective and efficient use of digital technologies infusing them with traditional M&A process will ensure smoother deal cycles starting from screening till post-deal activities. Due to COVID19 remote working trend, the use of new collaborative tools, data-driven approach, AI enhanced search and using analytics will yield better results