M&A Market 2020: Review and Outlook

As far as we can tell so far, the corporate transaction market can be described as a drama in four quarters. Our partner Philipp Elsen gives a review and outlook on the M&A year 2020.

1. the first quarter was characterized by great uncertainty on the M&A market

Until February, no one could foresee what implications the virus would have on the M&A market. While the country collectively studied key figures and rehearsed hygiene rules, discussions with investors and banks were characterized by a latently negative attitude of expectation.

2. shock rigidity in the second quarter

The second quarter in the 2020 M&A market can be aptly summed up in one word: shock paralysis. At the latest with the sharp falls on the stock markets towards the end of the first quarter, it was clear to buyers and sellers that there would be no "business as usual". Most deals were halted. Where they thought they were in the final throes, negotiations were dragged out. In addition, Material Adverse Change (MAC) clauses were negotiated endlessly and other problems were faked. The goal: to buy time. At the same time, there was a gold-rush atmosphere in M&A projects, which unexpectedly felt a tailwind as winners of the crisis. Examples included disinfectant manufacturers and online business models.

Q3 brings hope on the M&A market 2020

While the country and its people learned to live with the virus, strategic buyers consolidated mentally and financial investors adjusted their investment hypotheses. The money was still there and interest rates were low. As a result, the stock markets continued to rise sharply. Since September, the desks on the M&A market have again been full of info memos and investor decks.

Back to (next) normal:

In Q4, the situation is still characterized by uncertainty while financial investors focus on online business models. In addition, the focus is on companies in the sectors:

• Healthcare/Pharmaceuticals
• Food
• Telecommunications
• Technology
• Disposal
• Chemistry
• and packaging.

They are prepared to pay high purchase prices for resilient, COVID-immune business models. To put it more precisely: Financial investors are paying higher prices than before the crisis. As already seen in the global financial crisis, strategists are using the crisis to analyze and streamline their portfolios on the 2020 M&A market. They are divesting peripheral areas and strengthening themselves through acquisitions in core areas. In some cases also at lower purchase prices. When examining acquisition opportunities, the focus is currently on a precise understanding of the pandemic effects in the current year ("EBITDA-C"), as well as the long-term effects on the respective business model.

Philipp Elsen is a partner at the Düsseldorf-based M&A boutique IOM Advisory (www.iom-advisory.com), which advises medium-sized entrepreneurs, founders and investors on all aspects of corporate finance. As a German member of Global M&A Partners (www.globalma.com), IOM Advisory accompanies companies throughout their entire life cycle, from early financing rounds to targeted acquisitions to sales in the context of succession planning. In the ECOVIS Blog you will find further articles by Philipp Elsen on the topics of company acquisitions and company sales in the Corona crisis.