what to do if the recent economic downturn has stalled your M&A transaction

What to do if the recent economic downturn has stalled or delayed your M&A transaction

Over the last several months since the shelter in place orders went into effect surrounding COVID-19, we’ve seen many transactions that were in the works have stalled out. Larger deals (companies $50 million+) have been more impacted by COVID-19 than smaller companies. All around, we saw some negative impacts on close rates. The economic uncertainty has left many of these participants waiting for what might never come; a completed transaction. 

In this blog post, we will outline a few key disciplines you need to consider while waiting out the storm. 

  • Your guess is as good as mine: The economists and governments have some educated theories as to when business will be back to normal but it is imperative that you understand that any dates associated with timing of normalcy in the capital markets is still unknown.  
  • Business as usual: During these stall periods your best bet is to focus on the execution of your business. Nothing kills a deal or re-trades a deal faster than missed financial expectations. Also, don’t stop marketing even during these unprecedented times! Keeping focused on your business and your clients to ensure the least amount of deficiencies in valuation calculations. 
  • Wait, we have contracts!: While contracts are meant as a commitment, they often will also carry clauses such as “force majeure” or “act of god” provisions which ultimately allows one or both parties to use major events such as COVID-19 as a reason to back out of a commitment.  We have seen several deals re-traded based on this provision alone.
  • Don’t stop winning and sharing: Often during M&A transactions, companies get distracted due to the overwhelming amount of work and time that goes into completing due diligence, or documenting a transaction.  These periods can take 4-8 weeks (see below for the Revenue Rocket M&A Process) but when a global crisis is dropped in the middle of the proposed timeline, all bets are off.  Make sure that the outside world still sees your progress, that your competitors remain defensive and that your marketing and media remain active and positive.  Slowing these could impact valuations, “Your sales are low so we don’t want to pay what we agreed to before,” and will likely also make a slowdown in financial performance.
  • Hire an advisor like Revenue Rocket. The road to a successful deal is filled with unexpected turns (like a global crisis). From origination to due diligence, you’ll want someone on your side that’s been at the table, and RRCG has over 250 times.