Posted: 29 Jun. 2020 5 min. read

Deal making and opportunities for M&A to survive and thrive

We interviewed Australian corporate heads of M&A and identified key trends influencing deal activity and the expected impact of COVID-19 to their business in 2020. You can download our full The deal in focus report for data findings from our interviews and actionable insights from our M&A leaders.

Below, we share the highlights from our theme, Responding to COVID-19: Deal making and opportunities for M&A.

 

Key actions

  • Move quickly on opportunities, get a clear mandate from the board to acquire
  • Plan your ‘de minimis’ buy-side criteria to know what risks you are prepared to take
  • Have an edge when buying, show how your organisation will integrate effectively
  • Prepare commercial, financial, legal and operational info before going to market

 

Rebuilding for the new world

The continued disruption to business and industries due to COVID-19 means the mid-to-long term situation remains unclear. But as we head closer to recovery, corporates are developing strategic approaches in the response phase and looking at how to position themselves now to thrive beyond the crisis.

Important questions must be considered around the capabilities needed to drive growth in the new world. How that world will look depends on which sectors or subsectors will stay in decline and which can be rebuilt.

Understanding the rebound curves will help corporates decide the direction of their strategy and whether the markets where they operate are still attractive in terms of growth and profitability.

The rebound curves will be predicted by a number of factors, primarily changes in consumer consumption patterns caused by pressures on consumer spending — fuelled by higher unemployment and lower disposable incomes.

The sooner corporates can re-evaluate their objectives, reposition their strategies and consider whether they need to start divesting, buying into, or partnering, the more resilient their business will be and the more likely to generate the necessary financial returns.

How M&A leaders balance risks and rewards with unique opportunities

Although M&A volumes will be materially down in the next phase, there will be a natural level of underlying activity with opportunities to sell, but as the market has tightened, so has the pool of buyers.

Genuine buyers will be in a strong position and will have increased requirements, as well as a sharper focus on due diligence, stretching deal timelines, and putting pressure on sellers to get businesses in order before going to market and maintaining business performance during the sale phase.

Unique opportunities to purchase well-priced businesses will arise. Corporate executive leadership teams and PE investment committees should start to plan their ‘de minimis’ buy-side criteria and know what risks they are prepared to take to be on the front foot and ready to move on opportunities.

Boards will be cautious about success post-deal and integration is now a stronger milestone in the planning process, but for organisations looking for an edge when buying, being able to show how they will integrate effectively could help them to secure a deal.

Creating confidence in a conservative market

On the sell-side, valuations have been impacted. There are fewer buyers and they have increased requirements, so sellers need to have sensible and achievable expectations.

With a heightened sense of risk in all diligence processes, vendors need to go to market as prepared as possible in a number of key areas, including commercial, financial, legal and operational and showing how they’ve handled themselves during COVID-19 is important.

Building core business and making sure priorities and strategy are right will ensure greater resilience and help corporates to survive COVID-19 and thrive on the other side.

Creating confidence for the buyer that the business will return to or exceed its former track record is important to retaining interest and being clear on channel to market and access to the customer is critical.

Thinking creatively around deal structures will allow buyers to mitigate risk and considerations around joint ventures, alliances, earn-outs, partial sell downs or other innovative structures could leverage better valuations by effectively sharing the risks and rewards. 

Tax considerations  

Key structuring and due diligence tax implications on purchased businesses following M&A activity as a result of COVID-19 incentives and stimulus.

  • Stimulus measure may impact on the tax cost base of an acquisition
  • Need to review the criteria that targets may have applied for stimulus measures on, especially on JobKeeper

 

 

Read the next blog in our M&A series on Deal making with China in our new normal.
Or download our full The deal in focus report for data findings and insights from our interviews with ASX200 M&A leaders.

 

 

More about the authors

Bram den Hartog

Bram den Hartog

Partner, Consulting

Bram is a Partner at Monitor Deloitte Australia, located in Sydney. He is an internationally experienced Strategy Consultant specialising in Growth, Transformation and profit improvement in Consumer Goods, Life Sciences and Manufacturing. He combines analytical strength, creative intuition and interpersonal engagement on C-suite and Board level to deliver transformational outcomes with lasting bottom-line impact. He is a recognised leader for talent development and has led numerous engagements in complex, multi-disciplinary, multi-cultural environments across Asia-Pacific, Europe and Africa.

Victoria Brilliant

Victoria Brilliant

Partner, Mergers and acquisitions advisory

Victoria is a partner in our Mergers and Acquisitions advisory practice in Melbourne and has extensive experience working on high profile M&A transactions in Australia including private market transactions and successful public takeovers and defences. She has provided strategic M&A advice to numerous corporates and has deep experience in public and private company mergers and acquisitions, divestments, distressed business sales, public company takeovers, and defences.

Kat McMaster

Kat McMaster

Partner, Mergers and Acquisitions Advisory

Kat is a partner within the Mergers and Acquisitions Advisory practice in Sydney. She has a passion for working with entrepreneurs and business owners to ensure they realise the true value of their IP. Kat joined Deloitte in 2011 and advises clients across the health, technology and media industries in relation to the full range of transactions including capital raisings, acquisitions, IPOs and divestments.