{"id":2726,"date":"2020-07-30T14:55:01","date_gmt":"2020-07-30T11:55:01","guid":{"rendered":"http:\/\/www.liberalglobe.com\/?p=2726"},"modified":"2020-12-09T18:06:33","modified_gmt":"2020-12-09T16:06:33","slug":"mergers-acquisitions-ma-in-the-post-covid-19-era","status":"publish","type":"post","link":"https:\/\/www.liberalglobe.com\/?p=2726","title":{"rendered":"Mergers & Acquisitions (M&A) in the post Covid-19 Era"},"content":{"rendered":"\n

The epitome of capitalism is the giant Mergers & Acquisitions (M&A), which, in addition to being necessary, are vital because they lead to the organic growth of companies and the redefinition of their strategy. During the Covid-19 pandemic and the implementation of their response measures in developed economies, M&A followed the trend of the time by applying the practice of social distancing but in the corporate version.<\/p>\n\n\n\n

by Trust Economics-<\/strong>https:\/\/trusteconomics.eu<\/em><\/p>\n\n\n\n

\u00a9The law of intellectual property is prohibited in any way unlawful use\/appropriation of this article, with heavy civil and criminal penalties for the infringer.<\/em><\/p>\n\n\n\n

\"Mergers
Mergers & Acquisitions Deal<\/strong>
Photo by the website www.toyo.se <\/figcaption><\/figure><\/div>\n\n\n\n

The reasons for implementing M&A<\/strong><\/strong><\/p>\n\n\n\n

The reasons for the M&A agreements can be summarised as follows:<\/p>\n\n\n\n

  1. Extend a company’s business to new markets.<\/li>
  2. Sedation of production.<\/li>
  3. Increase economies of scale resulting in cost reduction by gaining a comparative advantage.<\/li>
  4. Exit from loss-making activities.<\/li>
  5. Focus on areas with a comparative advantage.<\/li>
  6. Absorption of competition, etc.<\/li><\/ol>\n\n\n\n

    \u039c<\/strong>&<\/strong>\u0391<\/strong> in times of uncertainty (<\/strong>Covid<\/strong>-19 pandemic)<\/strong><\/p>\n\n\n\n

    In times of uncertainty such as the Covid-19 pandemic, M&A transactions are drastically reduced and as companies seek immediate liquidity and given a lack of opportunities for buying interest and financing, their strategy is being reviewed. <\/p>\n\n\n\n

    Also, the price gap i.e. the difference between buyer price and seller price leads to the postponement of any possible agreement.<\/p>\n\n\n\n

    But after the passing of the crisis, bankers and lawyers specializing in Mergers & Acquisitions (M&A) seem to be moving substantially towards the re-heating of this “market”. <\/p>\n\n\n\n

    Having gone through the survival phase during the crisis, companies with a strong financial position and strategic planning can take advantage of emerging opportunities.<\/p>\n\n\n\n

    Indicatively, parts or entire companies that in times of uncertainty and complete normality would not have advanced these agreements may qualify for redemption or merger.<\/p>\n\n\n\n

    The M&A so far<\/strong><\/strong><\/p>\n\n\n\n

    • On July 20th<\/sup>, Chevron announced that will pay $13bn for Noble Energy, a smaller oil-and-gas rival.<\/li>
    • On July 21st<\/sup>, Adevinta (Norwegian Company), announced that will extend its advertisement action by buying a part of e-Bay worth $9,2bn.  <\/li>
    • On July 14th<\/sup>, Analog Services agreed to pay $19,8bn for the purchase of a chip manufacturer Maxim Integrated.<\/li>
    • On June, Just Eat and Grubhub announced a food-delivery tie-up.<\/li>
    • Aon\u2019s planned $30bn purchase of WiVis Towers Watson, a smaller insurance broker.<\/li><\/ul>\n\n\n\n

      The M&A tools used and how to reduce the risks caused by uncertainty<\/strong><\/strong><\/p>\n\n\n\n

      In the period of crisis, uncertainty about the development of the company for sale and its value is growing. The appropriate M&A tool in these cases is the earn-out mechanism in which part of the segment is paid during the transaction-agreement (taking into account the degree of uncertainty on a scale that will determine the price of the payment respectively) with future payment of a price balance, based on agreed objectives.<\/p>\n\n\n\n

      The advantages of using earn-out mechanism are: <\/p>\n\n\n\n

      1. Absolute flexibility in the time horizon (from one to more years).<\/li>
      2. Absolute flexibility in the indicators for assessing future performance.<\/li>
      3. Its application in stages or cumulatively (at the end of a period).<\/li>
      4. Its proportional or non-proportional application (payment depending on the results, etc.). In M&A among listed companies the earn-out mechanism can take the form of negotiable options in a regulated market (CVR-Contingent Value Rights).<\/li><\/ol>\n\n\n\n

        On July 18th<\/sup>, Essilor Luxottica (France-Italian eyewear firm) sued Grand Vision, a retailer it had agreed to take over a year ago, arguing it is not being given enough information on recent trading.  This case is an example of poor M&A due to incorrect information. If you use earn-out mechanism this problem would have zero risk of occurrence.<\/p>\n\n\n\n

        However, except from the earn-out mechanism there are and other M&A tools like the reverse earn-out, deferred payment & stayed buy-out.<\/p>\n\n\n\n

        In addition to the price, however, there are other parameters in the buy-to-let agreement that can reduce additional risks due to uncertainty. We will mention completely indicatively include terms such as:<\/p>\n\n\n\n

        1. The future actions of the two companies.<\/li>
        2. In the form of milestones against payment or penalty.<\/li>
        3. Financial or legal protection against future obligations arising from the actions of sellers, etc.<\/li><\/ol>\n\n\n\n

          What is certain is that at this time after the Covid-19 season, specialist professionals in M&A agreements will postpone their summer holidays due to workload.<\/p>\n","protected":false},"excerpt":{"rendered":"

          The epitome of capitalism is the giant Mergers & Acquisitions (M&A), which, in addition to being necessary, are vital because they lead to the…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[620,946],"tags":[1788,1789,1787,2191],"class_list":["post-2726","post","type-post","status-publish","format-standard","hentry","category-business","category-companies","tag-ma","tag-ma-tools","tag-mergers-acquisitions","tag-trust-economics"],"_links":{"self":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/2726","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2726"}],"version-history":[{"count":2,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/2726\/revisions"}],"predecessor-version":[{"id":3635,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/2726\/revisions\/3635"}],"wp:attachment":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2726"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2726"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2726"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}