COVID-19 Impact on Transaction Timing and Risks

March 19, 2020

As the impact of the coronavirus (COVID-19) takes hold on the financial markets, many of our clients have told us that a number of M&A transactions that were in the pipeline are now either on hold or moving at warp speed. The transactions currently at risk appear to be in the later stages of the process as underlying valuation metrics shift. On the other hand, sellers are increasingly motivated to move quickly, as liquidity becomes a limiting factor that could impact lending at commercial banks and the appetite for risk of private equity.

The dynamic market conditions, coupled with extremely motivated buyers and sellers, is leading to compressed transaction timelines and accelerated closing dates–all while businesses work to maintain social distancing, juggle limited corporate resources, and monitor the well-being of the respective workforces.

Due diligence has always been an important component of any successful acquisition, and the importance is compounded when the limiting resource is time. Deadlines are further strained by human capital working remotely and managing increased personal responsibilities with the demands of pending transactions. As operations become increasingly complex, timelines are compressed, resources are limited, and financial projections more opaque, the need for rigorous due diligence has never been more important.

The difficulty in properly vetting an acquisition target lies in analyzing the abundant financial and operational information within a relatively short window of time. The advantage then, goes to buyers who can execute efficiently and effectively—leveraging existing industry knowledge with an ability to distill the key information that is most important to the decision-making process. By focusing on the quality of earnings, financial and operational trends, and tax implications, buyers can obtain a comprehensive picture of the target’s financial risks and opportunities.

By utilizing virtual data rooms, conducting meetings with target management representatives online, and maintaining critical path milestones, Aronson LLC continues to provide our clients with transaction advisory services during this challenging time. If you would like to discuss a pending or potential transaction, contact Bill Foote or Barry Rieger at 301.231.6200.