Can we draw a parallel between the current crisis and the previous crisis of 2008?
The shock of the 2008 financial crisis had a significant impact on Mergers and Acquisitions—leading to a drop in valuations, to this day. How should we view the effects of the Coronavirus crisis?
The period preceding the Coronavirus was favourable for Mergers and Acquisitions. If the months of confinement affected the market, the following months were rather encouraging, unlike what we experienced in 2008. Why?
1) Investment funds have gained momentum.
The Mergers & Acquisitions market is currently driven by investment funds which complete more than half of the transactions.
2) A robust financing market.
Compared to 2008, the balance sheets of financing banks are currently healthy. Debt funds are becoming a very good alternative to bank credit. They provide liquidity from investors to lend to businesses and investment funds. Companies can now seek financing without necessarily going through bank credit.
3) Changes in investments.
Investors tend to look for less risky investments as they have done during different financial crises. There is also a scarcity effect and an increase in valuations.
4) Consolidation.
Smaller companies, deemed more vulnerable, tend to partner with bigger players to accelerate their growth, achieved due to their partners’ support.
5) Earnings before interest, taxes, depreciation, and amortization (EBITDA), excluding Coronavirus.
The Mergers & Acquisitions market has become more sophisticated with the growth in overall banking operations marketing through financial advisors. This change has resulted in the generalization of beneficial practices including transparency and the quality of transaction information. EBITDA can be adjusted differently on the pretext of a year excluding the impact due to the Coronavirus. Now accepted, this practice makes it possible to reconcile positions between sellers and buyers.
The transaction market is therefore favourable, with attractive valuations for resilient and defensive assets that meet current investor criteria. The actions of central banks and the historic stimulus plans of various states lead us to remain positive in the face of the current market situation.
To discuss this and discover the market possibilities for your business, please don’t hesitate to contact Mergex.
