Dealmakers Getting Creative After Virus Upends M&A Market
By Dinesh Nair, Liana Baker, and David Hellier
March 23, 2020, 9:00 PM PDT Updated on March 24, 2020, 1:17 PM PDT
As the coronavirus roils markets, dealmakers are pulling out all their tricks to get transactions done. Auctions are accelerating in case conditions worsen. Sellers are choosing cash upfront over higher offers; and they’re doing it all over video chat while pets and children roam in the background. Welcome to M&A during a pandemic. “I think people are grasping the fact they need to do their jobs when everyone is home, and you have to deal with your family and chores,” said David Gandler, chief executive officer of FuboTV Inc., which agreed on Monday to merge with FaceBank Group Inc. “This is creating some chaos but not too much. We all understand the situation.” Indeed: Deals are still getting done, despite market turmoil whipsawing stocks, threatening liquidity and muddling valuation predictions. Companies have announced $67.5 billion of mergers, acquisitions and investments since the virus was deemed a pandemic on March 11, according to data compiled by Bloomberg. To be sure, that’s less than half the amount during the same period a year earlier, meaning 2020 could be one of the worst years for M&A in a decade if that pace holds. And some transactions coming together now will have been percolating since before the outbreak. Still, private equity buyers in particular have been snapping up assets despite the volatility. Buyout firm KKR & Co.’s 4.2 billion pound ($4.9 billion) deal for Pennon Group Plc’s waste-management arm Viridor Ltd. came together much faster than a regular auction, people familiar with the negotiations said. In the early stage of the process, KKR leapfrogged the request for non-binding bids and instead came to Pennon with a fully financed proposal on March 13, said the people, who asked not to be identified as the details aren’t public. KKR was betting that the company would prefer the certainty of a firm offer instead of risking additional bidding rounds. It was right: the parties entered negotiations within hours and announced a deal five days later. In the age of social distancing, most of the hurried negotiations took place over video conferences, the people said, with the associated technological glitches and unpredictable interruptions that those interactions entail.
The team advising gold miner Endeavour Mining Corp. on its $690 million all-share deal for Semafo Inc., announced Monday, ran into similar issues, according to Jan Sanders, a partner with Endeavour’s advisory firm Gleacher Shacklock LLP. On-site visits and other physical due diligence took place before the pandemic ruled out in-person meetings, Sanders said. That made it possible for the deal to still come together. Special care was taken as Endeavour Chairman Michael Beckett is 83 years old and so considered higher risk if he were to catch the virus, CEO Sebastien De Montessus said in an interview.
“What’s going to be challenging, to be frank, will be if we need to start the integration by video conference,” De Montessus said. “That’s unprecedented.” For some advisers, working from ‘home’ doesn’t always mean exactly that. With financial hubs such as London and New York City at the center of national outbreaks, dealmakers are leaving big cities for more remote locations. One top bulge-bracket M&A banker said he’s fled London to work from the coast of Cornwall, while a U.S. private equity executive has holed up on a friend’s farm.
Goldman Sachs Group Inc.’s co-head of investment banking, Gregg Lemkau, is logging on from Hawaii, according to a tweet he sent Monday. Though his remote workstation has a great view, Lemkau is grappling with being six hours behind his New York-based colleagues. Accelerated Auction Private equity firm Nordic Capital’s recent agreement to buy U.K. eye-treatment provider SpaMedica shows how it’s becoming a buyer’s market. Nordic won an accelerated sales process because the seller determined it had the best chance of closing the deal, according to people familiar with the matter. “For a long time we’ve been in a seller’s market,” said Chris Abbinante, a partner with law firm Sidley Austin LLP, which wasn’t involved in the SpaMedica deal. “In the current environment, I expect that dynamic to shift.”
For example, on some deals bidders are adding so-called earnouts, or clauses that give sellers more money after the deal closes if the target company hits certain performance metrics. Long popular in the energy and technology industries they’re now popping up in other sectors to bridge pricing expectations, dealmakers said.
FaceBank and FuboTV executives wrapped up their final rounds of negotiations last week on Zoom, the popular video conferencing application from Zoom Video Communications Inc., according to FaceBank CEO John Textor.
They signed a deal on Thursday and debated delaying the announcement. “The merger timeline is now,” Textor said in an interview. “When you get through all of that work, the last thing you want do is leave an attractive transaction on hold. Even before the pandemic, windows open and shut all the time.”
— With assistance by Scott Deveau, Danielle Bochove, Crystal Tse, and Michael Hytha (Updates with remote work situations in 13th paragraph.)