Fritjof Franz, Partner at capiton AG; Carsten Hagenbucher, Partner at Charterhouse Capital Partners; Dr. Philipp Heer, Partner at HWF Partners; Richard G. Ramsauer, Managing Partner at VTC Industriebeteiligungen; and Andre Waßmann, Member of the Executive Board and Head of M&A at Helbling Business Advisors, together with panel head Dr. Nikolaus von Jacobs, Partner at McDermott Will & Emery, discussed the mergers and acquisitions (M&A) and private equity market in 2020, especially under the influence of the COVID-19 pandemic.
After a short introduction of each member of this panel, Dr. von Jacobs started by asking the panelists about how they had experienced the first period of the lockdown and the following months.
The panelists agreed that during the lockdown period transactions were put on hold, even though some deals signed/closed without being affected by COVID-19.
After that, the market changed in a way that the significant differences between the various sectors grew even bigger, which is now leading to a seemingly overheated market in specific sectors. On the other hand, it was stated that companies or entire sectors that already struggled for given reasons prior to the COVID-19 pandemic would find themselves in a very difficult position to survive now under the pandemic circumstances.
Regarding pricing levels, Dr. von Jacobs brought up that at the beginning of the crisis there was the sentiment that the market would see risk discounts due to the pandemic. However, he reported that in fact prices were instead increasing such that some market participants were assessing this as an asset inflation.
While the panelists agreed that there are some healthy and sustainable companies in the market, especially in M&A AND PRIVATE EQUITY MARKET 2020 fields like technology or Big Data, which will survive the COVID-19 pandemic unscathed, they also agreed that many companies will struggle for extended periods even if they survive.
The panelists pointed out that one could see many changes in the M&A business since March and the COVID-19 outbreak. The impact of COVID-19 is visible on different levels, such as a changing number of active players on the market or changed behavior on how to deal with financial issues. All panelists agreed that the insecurity resulting from the outbreak of the virus continues to be one of the hardest challenges to overcome. While looking at the acquisition landscape in general, it is obvious that for the time being, big deals cannot be expected.
It was also pointed out that distressed M&A and insolvencies of companies, which certainly are expected to happen, could be a significant opportunity. From an M&A insurance point of view, the market provides high competition on a limited number of deals leading to a decrease in premiums, whereas the pandemic also leads to more in-depth due diligence reviews on challenges.
In the following Q&A session, it was discussed whether smaller deals would play a bigger role in the time after COVID-19. The panelists pointed out that COVID-19 will not change the investment strategy by focusing more on smaller or midsized companies. Generally, the panelists expect that over time it is likely that there will be more opportunities for buying companies as compared to a world without the COVID-19-pandemic.
Overall, the panelists concluded that the COVID-19 pandemic creates a new investment environment entailing challenges but possibly also opportunities for the foreseeable future.
Dr. Nikolaus von Jacobs,
McDermott Will & Emery