Acquisitions and disposals during Covid-19

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There is no doubt that the Coronavirus pandemic has caused wholesale upheaval to the global economy but whilst there is uncertainty in the marketplace, the upside is that this also creates opportunity.

Redefining your strategic objectives

The hiatus caused by the lockdown has provided many businesses with an opportunity to review their operations and their feasibility. Many manufacturing businesses have been able to adapt to enter new markets (the personal protective equipment (“PPE”) and hand sanitizer shortages being two good examples) whilst others have been left wondering how they will be able to exist the lockdown scenario. As a consequence, business owners will have likely been able to highlight areas which have been either weak or under-utilised, which in turn emphasise areas for improvement.

The new normal is ripe for opportunities

Given that businesses are looking at ways in which they can improve efficiency and adapt to new ways of working, this provides an opportunity for acquisitive businesses looking to adapt and grow. This is likely to be of particular importance in certain sectors where more traditional working has been impacted due to the lockdown; for example, certain businesses in the retail sector with limited online presence have been materially affected, with Debenhams appointing Administrators in April 2020. However, distressed businesses can offer value for money if purchased through an insolvency process, which has been demonstrated with Cath Kidston, whose brand and online offering has been purchased out of Administration.

Building resilience

There is also an argument that making your business more robust by acquiring a similar business (or a competitor) is a good option. Whether you are looking at increasing your market share (by buying a competitor) or purchasing a business that will support your strategic aims, bigger can often be better (whilst noting that becoming big can create more problems although that is not for discussion here). Businesses with purchasing power will be looking at their competitors to identify where gains can be made through strategic acquisitions, in the hope that they will be less affected by a second wave of lockdowns.

Weaknesses may be identified too

As part of the review process, business owners may also have identified business areas which may no longer be part of their overall growth strategy. Whilst we often talk about mergers and acquisitions (“M&A”) being from an acquisition perspective, it is also important from a vendor-side perspective, especially if you have an underperforming business in your group which is no longer appropriate for your business. Taking the time now to look at what your business looks like, and what it should ideally look like, will help build resilience for the future.

Buyer beware

There have been many examples on social media recently where people have advised that they have bought a business without any cash changing hands, where they have been able to restructure a deal due to the Coronavirus pandemic. Acquisitive business owners should be wary of purchasing businesses in the current climate without taking suitable advice; most businesses are distressed from a cash perspective, and acquiring a business without fully understanding its liabilities may prove terminal later on.

In Summary

For business owners who have reviewed their future objectives and are looking to adapt, acquiring a business can be a useful way to do that. Where a target business is financially distressed, purchasing the business through an insolvency process can be a good way to enhance your business’ offering whilst ensuring that any liabilities remain with the company being purchased. We have an experienced team at Armstrong Watson who can assist with mergers and acquisitions, both in solvent situations and through a process. If any of the above piques your interest, please do not hesitate to get in touch with our team who will be happy to help.