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Enhancing M&A Activity. The Current Panorama.
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The difficulties are changing and modifying current M&A activities and transactions in some ways. M&A activities are adapting themselves into new forms of operation allowing it to be synergized with the current developments of the market and there is no reason why one could not contemplate these evolutions as positive tendencies for the future M&A activities.
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With the recent credit crunch crisis, it is difficult to have the whole financial system operating as it used to be, and evidently this has affected many company’s governance and decisions and consequently their activities in the merger and acquisitions sector.
In the IBA´s Merger and Acquisition Conference some guidelines were mentioned about things that have to happen to improve the M&A activity, highlighting the following:
i) Pricing: The M&A activity is slowing down because it is not a good time to sell and if the seller wishes to sell, they expect payment to be at the same price it used to be 12 months ago, circumstance that makes agreements difficult to reach.
ii) Transactions: This is the scenario where friendly negotiations take place and shareholder activism is becoming active.
iii) Financing and capital access: The current approach is to pay current price in cash and equity since 2008 was the peak year of risks.
iv) Terms and conditions: Before the scenario was that the seller took the risk but now it is shifting and it is the buyer who takes the risk (regulatory and financing risks). The ideal direction would be to be headed to a shared risk, and this means the buyer can purchase knowing that he can leave the transaction and this is a risk that the seller must face too. Nowadays there is limited amount of risk from the Banks (because they simply cannot longer take that risk)
v) Resolving the uncertainty: This leads us to the question of when is it going to get better? The answer given is that M&A activity is coming out of recession and deals are very attractive to shareholders now because they can buy at the price that is not high.
To summarize the panorama as a whole, the difficulties are changing and modifying current M&A activities and transactions in some ways. M&A activities are adapting themselves into new forms of operation allowing it to be synergized with the current developments of the market and there is no reason why one could not contemplate these evolutions as positive tendencies for the future M&A activities.
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María Antonia Gwynn
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7/10/2009
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Contact
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