In this uncertain era of the coronavirus pandemic we hear about the slowing of investment processes, the postponement of long planned M&A transactions and talk of uncertainty about the future of mergers and acquisitions. Can we really be sure that a “transaction quarantine” is coming? We would argue that it is important to not lose sight of the other side of the coin- particularly investment prospects and the potential in providing solutions for failing enterprises.
Investment prospects – Do not let fear blind you!
We are all acutely aware of the mass confusion the SARS-COV-2 pandemic has exacted on both global and Polish stock exchanges. Stock prices are plummeting, instilling panic: however, adept investors are just waiting to cash in on this opportunity. Crisis is an optimal time to invest, provided that we invest wisely. The mass sale-off of shares is a phenomenal opportunity to capitalize on the acquisition of valuable assets at advantageous prices. Shares of reputable companies (with strong established market positions) are now looking even more appealing to potential investors. How should we smartly approach these prospects? Most importantly, without panic and of course intelligently. In the current environment of frenzied media panic this notion may seem very challenging or even impossible. However, with the right lens these opportunities can readily be seen.
Key elements to keep in mind:
Adept selection of assets
True diversifiation of investments
Thoughtful preparation preceding a transaction and, most importantly
Being able to draw on the seasoned experience of trusted advisors
The liquidity of M&A transactions (especially in times of crisis) depends, in most part, on skillfully structuring the process. This is why the specialists chosen to facilitate the creation of the most optimal legal and business frameworks for a smooth transaction play such a crucial role in guiding us through these complex processes.
To be clear, the end of this pandemic does not necessarily mean the end of the crisis. The economy will take quite some time to recover, thus the stage is being set for large gains to be made on the next peak. The economy is cyclical, rising and fall, gains and losses: the periodic nature of such cycles determine when to buy and when to sell. Most often, patience truly pays off.
The saving grace for enterprises in turmoil
We are all aware that often the last resort for a failing company is its acquisition by a stronger entity. However, contrary to popular belief, this is not always done solely to reduce costs or merely to prevent bankruptcy. A competently planned and expertly executed restructuring provides the company with a much needed boost of new “business energy” in order to not just continue operating in the market, but often to also become more competitive or fiscally efficient. For example, this can be achieved through the infusion of capital from an external investor or by merging entities sharing common business goals (optimizing both constructs). However, these transformations require the artful development of optimal operating dynamics, adept arrangements of corporate governance hierarchies and seasoned professionals guiding transaction protocols.
Thus, an economic crisis does not necessitate freezing all M&A transactions. As we mentioned, for many investors a decline in valuations can be a tremendous opportunity for strategic asset reallocation. Furthermore, for many companies struggling with fatal financial problems, restructuring may become the last chance to prevent the need for filing for bankruptcy. However this can also sometimes result in a merger with an adept entrepreneur who will contribute to more future growth than was ever possible before. Is it better to have 10% of a million or 100% of nothing?
Why so sure?!
History is cyclical. Looking at the still salient crisis of 2008, we can see that the number of transactions that were executed globally slightly decreased, yet the value of these undertakings was significantly higher similar to ones conducted during periods of economic growth. It is clear that during upturns investors rushed to sell assets at elevated values to subsequently buy companies at significantly lower valuations.
Strategists have, for generations, been analyzing when to move with the least amount of detriment to themselves and the markets. Although the arena has changed considerably; today, the foundational principles of this, “strategic game,” are remarkably similar and the same advice is still the best advice. Choose better advisors, patiently observe, and form an advantageous tactical alliance or just strike at the optimal moment.
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