The world of M&A and business in 2020 was certainly challenging, rapidly changing and transforming from one perspective to another, cleverly depicted in M.C Escher graphic above. How do you view it – top to bottom, bottom to top or left to right…? Perceptions were influenced and challenged by daily news spin of “experts”, government intervention (good and bad) with illusions leaving you to see what you will and to respond as you wish, never static and forever changing…
M&A was certainly heavily impacted earlier this year with deals cancelled by nervous buyers, put on hold or ultimately abandoned due to travel restrictions. Nobody knew what lay ahead. Some offers were withdrawn due to market uncertainty however where there was confidence in the long term, deals went ahead and completed.
Despite the new COVID requirement that all business sales to foreigners receive Foreign Investment Review Board (FIRB) approval (previously only needed for deals over $270m), the added complexity to small and mid-size deals did not prevent deals from closing. Managing the buy-side, by mid-year we had completed a relatively fast-track acquisition of a wholesale commercial LED lighting business including FIRB approval. In November, we managed the sell-side sale of a highly successful mid-size advanced mining technology business, again requiring FIRB approval with completion taking only marginally longer than planned [more]
Travel Restrictions and Teams/Zoom in M&A
Due to Covid travel restrictions, this most recent transaction was a first where we completed a deal without meeting the buyers or sellers in-person! Teams/Zoom meetings were regularly used during DD and actually made life easier with quicker turn-around and resolution of key items. Another benefit of no international travel was that the key people involved in the deal were stuck in their home states, readily available and not somewhere on a plane or in the wrong time zone!
Physical meetings between the buyers and sellers were however very important in developing rapport and trust and for working through the finer contract details. In-person meetings between the parties, supported online by interstate advisors and legal representatives, known as “hybrid meetings”, were most beneficial and will certainly continue as an effective part of the M&A toolbox.
There’s Always a Crisis – Buffett Observations
Not to diminish the challenges and difficult times experienced by many during COVID lockdowns, but to gain perspective on the year, it is well worth reading Warren Buffett’s past Berkshire Hathaway letters to Shareholders; his annual comments place events of the past year into a long-term perspective.
“During 1987 the stock market was an area of much excitement but little net movement: The Dow advanced 2.3% for the year. You are aware, of course, of the roller coaster ride that produced this minor change. Mr. Market was on a manic rampage until October and then experienced a sudden, massive seizure.” re the 1987 Crash (published Feb 1988 )
Three decades later, his comment on the impact on markets of COVID-19 “there is always a crisis”. The Australian and US stock markets are ending 2020 higher than they started…!
The M&A Market – as can be expected
M&A activity, as expected, was significantly impacted from early March. Typical headlines from companies such as serial acquirer Wisetech summed up strategies
“Considering the speed and scale of the global crisis, throughout this period and into FY21, we are proactively tightening the focus of investments in new products, reducing discretionary cash expenditure, and deferring execution of our acquisition pipeline appropriately.”
Other headlines include “While M&A grinds to a halt, many executives plan for future deals“. Some companies with long terms views have continued with their M&A strategies, taking advantage of opportunities or have quietly started an active campaign to secure prospective targets.
Optimal is engaged in buy-side search campaigns and sell-side business marketing, deal management and completion activities.