Author: Zuba Parvez Bubere
Symbiosis Law School, Pune
Covid-19 is an unforeseen, unanticipated and an unwelcomed phenomenon which has smashed into various facets of growth and prosperity. The larger the scale of operations, the higher the magnitude of repercussions. In this scenario, huge multinational enterprises and the corporate industry, on the whole, engaged in Mergers and Acquisitions are fiercely hit. Gloom-ridden consequences are evidenced not only in the Indian business environment rather on a global scale. Numerous business houses have found themselves in a fix to fight the obstacles and threats bowled by the coronavirus outbreak. This induced forceful adoption of lay-off and retrenchment policies by employers and millions of those employed in the working class was left with nothing but the loss of work. The coronavirus outbreak has not only posed enough challenges to be met during the crisis, but a lot more has to be worked upon once the recovery begins.
According to the graph highlighting past statistics, Mergers and Acquisitions displayed witnessing potential for consistent growth in the sector. A reference can be made to the years, 2002-2003 and The Great Depression in the years 2008-2009 during which dealings in Mergers and Acquisitions witnessed a fall; are classic examples of the difficult endangering period survived and recovered. However, those instances were more concentrated in the financial markets sector whereas the pandemic can be viewed like a tornado which has probably caught up the entire economy other than just a particular sector. Due to the current crisis, the supply chain of commodities, consumption pattern of consumers and balance of cash reserves has been drastically affected; resulting in all the pressure built-up on stakeholders.
The survival challenge
During these times of crisis, the primary challenge for the companies is to survive. Although, it is an undeniable fact to state that corporate players will continue to be posed against the said challenge in the aftermath of the pandemic. One of the modes of discovering fruitful growth opportunities would be reframing and rescheduling the patterns of business conduct and costing. This in turn demands tremendous focus and time devotion towards research and development on the subject. Exhaustive research and study of how the markets struggled and overcame the exigent phenomenon will help to model strategies to out-master the effects of Covid-19 on business. Additional emphasis may have to be laid upon due diligence, business valuation, business structure and legal documentation. Be it addressing complex issues like material adverse effects in the area or considering opportunities for development, an in-depth analysis of all the sectors associated with Mergers and Acquisitions has become mandatory. Any discrepancy or failure to undertake the same may result in huge losses and liabilities rather than profits and beneficial outcomes.
Mergers & Acquisitions Dealings
Dealings which concern Mergers and Acquisitions have undoubtedly seen a shift from the regular course of actions. Mergers & Acquisitions dealings are more time-consuming affair than usual. When the world faces economic or other uncertainty concerning Mergers and Acquisitions, leverage focuses on buyers and away from sellers. Sellers, in such circumstances, have to work harder to win customers since the economy faces depression and consumption pattern worsens. Every stage in the process will need some time extension due to physical and technical constraints. Negotiations, third-party consent, regulatory approvals etc. will need to be more compelling. Buyers, on the other hand, will have to be mindfully taken care of since the situation demands better convincing strategies. Lack of experience coupled with discomfort to resort to the online mode of conducting business interactions, add to the problems.
The Finance issue
One of the primary concerns in winning a Mergers and Acquisitions deal is the procurement of finances. The mergers and acquisitions is a comprehensive and extremely important aspect in the working of corporate which involves managing huge sums of money. The traditional method of fixing the financial issue falls back on debt financing. Since the financial markets face a heavy crisis amidst the turmoil, borrowers naturally began to fetch third-party debt financers; a means which involve a lot of uncertainty to the terms of the lender-borrow contract. Borrowers open to lending from third-part debt financers need to undertake an exhaustive study of such players. Background details, history, lending capacity, customary practices, and interest calculations etc. of third-party debt financers call for good consideration.
M & A and Due Diligence
The unpredicted knock by Covid-19 has both directly as well as indirectly compelled exhaustive due diligence to be carried out even in the remote areas to analyze the position of seller’s business post-pandemic. Every seller in the market is forced to compromise to conditions in order to survive. This has in turn cast a good impact on other sellers and their operations. Each one would attempt to come up with policies to attract fresh and profitable opportunities. The framing of new and powerful strategies, advanced business models and revival structures would depend upon careful due diligence undertaken by the companies. The nature of such due diligence pre and post the pandemic period will differ due to obvious reasons.
Corporate entities involved in Mergers and Acquisitions will now have to comply with fresh policies and more cumbersome procedures laid down by regulatory authorities mandated for their functioning. Authorities, on the other hand, will be posted with the exigent scenario of drafting such policies that will not only flourish business but result in overall welfare. The outbreak has necessitated the State to work wisely. In such a sequence of events where healthcare remains the primary objective, delays in setting up a healthy business framework are strenuous. Nevertheless, compliance with stringent rules and regulations will find no excuse.
The problems posed by COVID -19 have unquestionably laid down lasting lessons to be learnt; a significant one being to always own an effective backup. Corporate entities must not only focus on framing strategies to earn higher profits but also draft alternative plan of actions to encounter clamant scenarios. This may, indeed, call for painstakingly functioning of departments in the form of due diligence of various factors. Covid-19 times shas also allowed business entities to take a break and develop the skills needed during times of perplexity. A specific degree of spontaneity will be needed to get through the crisis, thereby furthering out of the prospective recovery.