COMPARATIVE STUDY OF PRE AND POST COVID M&A PERFORMANCE
Author: Sakshi Vishwajeet Kale, IV year of B.A.,LL.B. from New Law College, Pune
To understand the effect of covid on mergers and acquisitions we first need to understand what these terms mean. A merger refers to two or more entities coming together and forming a new entity and acquisition means when a company takes over the other company and acts as the owner of that company. Coronavirus has not only claimed the lives of loved ones but has also caused significant damage to the business market around the world. In the aftermath of the pandemic, many businesses have closed down, some had to lay off their workers and some have slashed their operations. The business market has experienced a tremendous change. Mergers and acquisitions have been driven by the government taking action. M & A has also given rise to new opportunities. The economy has undergone substantial changes. Mergers and acquisitions in the recent conditions and situation opened the floodgates for many companies to avoid being shut down and to sustain profits. Therefore these days the companies are restricting themselves to form new deals.
Many companies are forced to drop the acquisition strategies which led to a downfall in the market and many of the deals have been postponed or stopped due to this pandemic and they can only be resumed once the situation gets stabilized. Many companies have merged to survive the market during these times. The buyers have been buying the business at low rates and sellers have suffered the loss. The strategies used in the deals have been different from the financial and economic crisis faced earlier as these are working according to the demands of the environment. There has been a change in business outlook, valuation concerns, liquidity crunch and mainly the transactions between cross borders have been severely impacted because of the closing of international borders.
The lenders have been imposing unreasonable terms and conditions and are increasing the prices therefore the buyers are left with a few choices. In such cases, acquisitions are the only options. It is important to see the effect the pandemic has on sellers’ businesses. As with the rules, there will be no physical inspection hence making it more difficult. The pandemic also has effects on the agreements and provisions of the company like At the time of the pandemic, the letter of Intent under the agreement is to be modified after the process of due diligence on the business and its financial conditions and also considering the employees.
As for the memorandum and other agreements that are to be negotiated and signed, Provisions that were given less weightage might be considered major aspects now such as:
The definition of the clauses might shift and bring pandemic or particularly “government-imposed lockdowns.” [1]
Considering the situation of pandemics many steps taken by the companies are considered outside the course of business. In some cases, although this works in the best interests of the company in some cases it might not work.
Many new business priorities have also emerged in the pandemic such as health and safety, Digitalization, Virtual workforce.
Visiting the courts in such a situation is also difficult with the courts being closed or delayed. The courts also conduct virtual hearings but it still affects the parties point of view about the related matters.
The parties have to agree that the covid-19 crisis will affect the transactions, therefore the agreements must include the terms like a pandemic, lockdown.
The government of the situation is announcing new measures weekly and they have to be considered.
As there can be no physical contact these days the parties will rely on e- signing and e- execution of the agreements but the stamping and registration process is a bit of concern.
The audit and meetings will also be held
Through video conferencing and e-voting.[2]
SEBI, the RBI and also the CCI (in march 2020) have been permitted to file applications electronically. [3]
Outcomes
There have been delays in the transactions and the process of deals. Many bidders are dropping out and there have also been layoffs of the employees.
Cross border transactions and investments are uncertain and difficult in these times considering the lockdown rules.
The due diligence process will be changed to a level.
Opportunities
Apart from the negatives, the pandemic did open up some opportunities. As we very well know, every problem has a solution. Therefore as a solution to look after the health and safety of the people during the covid-19 pandemic, the concept of telemedicine through videos and online platforms was started. Telemedicine means diagnosing and treating people through telecommunication. This whole new concept creates more opportunities and helps to expand and explore the concept of health-tech. Although there has been a downfall in the business market, there has been an increase in the insurance sector. The reason is that the pandemic has made people realise the requirement of insurance and hence expanding the M& A activities.
Post covid – what will the future hold for M&A
Although this is a short term effect of the Covid – 19 crisis on the M&A . This has given a new outlook to many consumers relating to health care and pharmaceuticals, the medical field, medical research, new medical devices, telemedicine and so on. This is a result of forming new opportunities. Such ideas as telemedicine have given a new range to health tech.
Conclusion
We can say that the duties of the business and its employees or that of the buyers and the sellers have not changed but the way that they fulfil the duties of their methods have been affected by the Covid – 19 crisis and they’ll have to do with the same methods till the situation gets back to normal. Although as we studied there has been a downfall in the financial aspect of the market we have to look at the positives and adopt the new ways and work through with it till the situation is stable. We can all agree that there will be no in-person meetings for a while and we will have to deal with the digitalization and the technological ways to complete and sign the agreement like the e-execution and e- agreement. This crisis has also formed dual realities for the M&A market and companies have been surviving to continue with the loss. There have been changes in the M&A but it is for the time being before we get back to the old ways of the same.
[1]https://www.forbes.com/sites/forbesbusinesscouncil/2021/02/03/how-the-covid-19-pandemic-is-reshaping-the-mergers-and-acquisitions-space/?sh=7e6b08557019
[2] https://www.mca.gov.in/Ministry/pdf/Rules_19032020.pdf
[3]https://www.cci.gov.in/sites/default/files/whats_newdocument/30thcircular.pdf