OPPORTUNITIES IN A DISTRESSED ENVIRONMENT UNDER COVID-19

Jan-Daniel Neumann, Managing Director at Bregal Unternehmerkapital; Dr.-Ing. Axel Geuer, Managing Partner at AEQUITA; Timo Klees, Partner at PwC; and Arndt Geiwitz, Certified Public Accountant, Certified Tax Advisor and Managing Partner at SGP Schneider Geiwitz & Partner, together with moderator Dr. Philip Bacher, Senior Director and Member of the Management Board Germany at AlixPartners, discussed the opportunities in a distressed environment under COVID-19.

The panelists started off by each giving their take on how the current status of the economy changes their respective professional practice and the prevailing state of mergers and acquisitions (M&A) businesses, especially focusing on an investor’s perspective. Even though the panelists all agreed there was an overall sense of “picking up again,” Timo Klees pointed out that it is very clear that day-to-day work has changed drastically, and furthermore, a year ago he thought it was impossible to remodel M&A work this fundamentally, but it was indeed done. In his opinion, deal flow basically came to a stop but now is picking up again, and it isn’t only concentrated on a few industries but flooding out over many sectors. According to Klees, what we need now is flexibility from the investor’s perspective, as most of the processes are fast-tracked and we all have to adapt to the situation. However, he thinks things are coming back to the market and that there will be an upturn. Moderator Philip Bacher went on to ask Axel Greuer for an investor’s perspective concerning the difference in investments in today’s market, and whether there were different analytics necessary. Greuer explained that so far he had not closed a deal that was triggered by COVID-19 as they only just start to see them now. Yet there are cases that had been foreseeable before the coronavirus crisis that received a final “push” to materialize.
The panel continued with their common agreement: that we have to accept that this situation will stay with us for a while and therefore ensure our portfolios are well adapted. Jan-Daniel Neumann continued to plead that everyone has to accept that this is the new normal and find a way to work with it.

The panelists further went on to discuss what exactly COVID-19 has taught us so far as to how one can optimize companies, especially within their actions and strategies to handle crises. Arndt Geiwitz addressed the example of GALERIA Karstadt Kaufhof’s approach, including the department store chain’s extensive discussion on whether it should take the government funding offered as this would mean a loss of liquidity and free cash flow in the coming years, which wouldn’t make any reasonable economic sense for the company. All panelists agreed that we do not only have to ask the question what the new normal will be, but also respectively accept that there will be a lot more uncertainty in every business model we see.

The panel also discussed the aspects and impacts of the major fallouts in industries that were hit particularly hard, e.g. the travel industry. Neumann pointed out that he does believe in major opportunities resulting from the changes in the travel industries. He believes that the change will be profound but can be seen as a positive outcome, as it will lead to new opportunities; he urged investors to be at the forefront and try to be the winners of the situation. Neumann went on to conclude that right now there is in fact no decrease but an increase in the evaluation of businesses, and further evaluates that the deals for non-distressed M&A are not decreasing so it has been possible to see which businesses are resilient. Geuer joined in Neumann’s point of view, underlining that this current crisis, like any other, will accelerate change that is underway.

Overall, the panelists all agreed that there was lots to be learned from this crisis and that, as Neumann put it, “a lot of people will wish they would have seen that the situation will not be resolved any time soon and that they would have adapted to it earlier.” Furthermore, Geuer and Klees noted that, coming out of this crisis, the economy and its culture will be more open to change as they see how much (and how quickly) change was able to happen within these times. Greuer was certain that this will in fact even trigger more entrepreneurial thinking and that people will become more confident with change in total. Klees concluded that this crisis could even help to encourage innovation, especially in places where there was too much time and effort spent attempting to just preserve the current status (for example, in the automotive industry). All panelists stated that we do, however, have to drive change actively; only then will the market grow with it.

Chaired by
Dr. Philip Bacher,
AlixPartners

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