The mid and long-term effects of the pandemic on M&A
Kalita Partners — Summer Series 2021
Part 1/4
The global economy is cautiously dusting off after the shock from the Covid-19 pandemic experienced over the past months and governments and businesses are focusing on rebuilding the heavy hit areas of the economy whilst continuing to protect the health of people. Still, in adversity there are always opportunities and several businesses in resilient industry sectors including food retail, pharmaceuticals and delivery services are thriving, and those in the technology sector (for example: e-commerce, software design, cloud hardware and computers and automation equipment) are experiencing fast tracked growth.
One demonstrable factor of rich market opportunities in the resilient industries are the barely interrupted M&A activities that have continued to increase following the second quarter of 2020. The attractive businesses put their Corporate Sellers in a commercially dominant position to run a highly competitive bid process to which a few prospective Buyers are partaking, allowing a shorter timetable for due diligence, and often simultaneously negotiating with the potential Buyers until all their terms are accepted.
We have identified three major risks that should continuously demand the increased focus of Corporate Buyers, in addition to the financial reporting related valuation and impairment testing calculations. These risks are likely to require more attention going forward and beyond Covid and can’t be left unchecked:
1. Cyber security
Financially motivated cyber incidents have been the main protagonists of the COVID-19 pandemic. There is evidence of a decisive target shift from individuals and small businesses to large corporates and governmental institutions, thus making cybersecurity and cyber due diligence a critical factor in M&A decisions.
2. Environmental, sustainability and governance (ESG)
The impact of the Covid-19 pandemic on all aspects of social and working life has led to collective reflection on the importance of being aware and respectful of our environment. The development of ESG frameworks, compliance and reporting are seen as necessary areas of focus of businesses committed to creating long term value for their investors, shareholders and stakeholders. Hence it is a high priority topic for M&A participants.
3. Reputation
Traditionally a risk assessment covers matters such as identification of the ultimate business owner (UBO), fraud and compliance, bribery and corruption, money laundering, economic sanctions, and conflict of interests. This assessment conducted prior to the signing of the acquisition agreement, is being expanded to include risks of leaks and rumours, and fake news and disinformation due to the significant effect of social media on brand perception in the past two decades.
For further details on our thinking on these topics and their impact on corporate Buyers contemplating M&A transactions in the coming months, and for insights from subject matter experts — stay tuned and read our next upcoming articles.
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This series has been written by Kalita Partners with the contribution of Kamelia Kantcheva, Julien Artero, and Giulia Tesauro.
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Kalita Partners helps businesses respond quickly and discreetly to complex and sensitive situations.
Kalita Partners was founded in London in 2019 to assist clients during special situations. Such atypical events which have the potential to dramatically alter the future course of business, reputation, and value. Our team and network of highly experienced forensic investigation and business intelligence professionals helps clients react quickly to special situations. We typically assist clients during complex disputes, cross-border asset tracing & recovery, fraud & corruption investigations, and other financial crimes and misconduct. We often work on the most complex situations in the most challenging jurisdictions. Therefore, we understand the importance of combining flexibility, cultural diversity, creativity, and expertise in everything we do.
