If one does not want to be overrun by the virus, he may be obliged to form alliances, and M&A (mergers & acquisitions) may be for many corporations the cure to prevent a crisis. It will be however essential to act promptly, in order to avoid dispersing the value of the business. Corporations today may have to rethink their business model, as the dimensions pre lockdown are no longer sustainable. Corporations that ones were competitors may have to enter discussions in order to guarantee their own survival. This is what is already starting to happen in many international markets, also at the level of large corporations. In Germany construction businesses have initiated processes to form partnerships, to be able to fulfil their obligations, and to ensure the necessary financial and organizational resources. The government guaranteed loans may be a sufficient remedy for some corporations but may not be the final solution.
|Actions to benefit from M&A after lockdown|
|Phase of analysis||Phase of closing|
|Auto-analysis to ascertain the going concern after lockdown||Opening the capital to international industrial groups|
|Preparation for a possible alliance||Merging with other corporations in the same sector (horizontal) or clients and suppliers (vertical)|
|Identification of the most appropriate partner||Opening the capital to private equity fund with hands on approach|
|Start of the process and closing||Start of the process and closing|
Businesses must seek new markets and opportunities also through alliances, which for many will be the real medicine, with more immediate synergic action and effect compared to solitary initiatives. This will however require taking measures swiftly before a possible crisis will degenerate to an irreversible status. Key word will therefore be, negotiate with everyone. Doing so with investors when a crisis is already obvious would mean jeopardizing the transaction (some investors do not invest in distressed assets) or starting from a weak position, therefore compromising an evaluation of the business at market values and a proper equilibrium between in the shareholders’ relationship after closing. Investors have their own logics and diverse practices, with timespans and requests which are different according to the objectives of the investments. In a delicate phase as the one we are currently experiencing, a certain attention deserve investors and partners from China (or in general foreign corporations), that for years have already proved a concrete interest (by closing a significant number of transactions) to enter into the capital of Italian corporations. Of course, businesses that are strategic for the national economic sector shall be protected. If partners from Asia on the one hand may require more time in the negotiation and due diligence phase, on the other they offer various possible benefits, such as:
(i) evaluations which are usually more interesting compared to the ones offered on the market,
(ii) a privileged channel to enter the Chinese market,
(iii) synergies in the production field and potential cost reductions,
(iv) in case of sale of a majority shareholding stake, a higher flexibility for the Italian directors and shareholders in the decision making process.
A corporation which may intend to move towards an alliance, will have to duly and timely prepare, from an organizational and documental perspective, to ensure a smooth negotiation process and generate trust in the investor. For an enhanced effectiveness it may be useful to prepare an info memorandum and a vendor due diligence before a start of the negotiations, estimating the value of the business with the most appropriate evaluation criteria, and engaging a specialized advisor to perform such activities. This from a Covid-19 crisis and strategic point of view.
By Marcello Pollio and Massimo Petrucci
For further information, contact:
Massimo Petrucci, Partner
Bureau Plattner, Bolzano
t: +39 02 25060760
#M&A, #Italy, #WLNadvocate, #Covid19, #alliances, #strategy