M&A Transactions in Medium-sized Companies: The Influence of COVID-19

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To slow down the rapid spread of the global coronavirus (COVID-19) pandemic, the administrations of many countries have taken unprecedented drastic safety measures. The impact on national as well as international economy is estimated to be huge, as the historical crashes of the stock markets suggest.

The M&A practice has not gone unaffected by this. Many prospective buyers are refraining from share deals to keep their assets together and many banks retrieve their finance commitments/agreements to provide funds. Other transactions have been postponed to Fall 2020. Unfortunately, it is still unclear if this time frame is sufficient, and only time will tell. On a positive note, this crisis may offer interesting opportunities: After a decade of steady economic success and an extremely seller-friendly development of the M&A market, the current situation could open up new, attractive opportunities regarding the drafting and negotiating of contracts for prospective buyers.

On the seller’s side, a disposal may also be attractive during times of crisis. Family-run, medium-sized companies look out for financially strong investors for support during these challenging times. Private equity investors may also open up new options with their buy-and-build-strategy.

In the case that M&A transactions are carried out,  impairments in terms of time are to be expected. With regard to the actual contract negotiations, the measures that have to be taken to bridge the different expectations of the purchase price have to be considered (e.g. earn-out, seller’s notes, vendor loans, reinvestment or roll-over of the management). In this regard, the consultant’s creativity is much needed.

In this article, Dr. Michael Cziesla, partner at McDermott and Arnd Allert, managing partner at GF Allert & Co. GmbH, describe the significant interests of buyers and sellers amidst the COVID-19 crisis, as well as their protective mechanisms and their benefits for M&A practice.

Read the full article in German here.