Banks should play a key role in upcoming M&A and re-structuring activities

During the next months, the COVID-19 crisis will hopefully become more manageable. Numerous lock-down restrictions and vaccinations received by the largest part of the population will most likely bring infections and the risk to health systems down to acceptable levels so that we can start thinking about “what next?”

Following economic contractions and recessions in 2020-21, most forecasts predict recoveries thereafter in 2021-22. Current high tock market valuations already indicate a strong recovery for most industries.

There is good reasoning for the optimism. A lot of investment and replacement decisions have been put on-hold during last year. Lots of (saved) funds are just waiting to be spent and brought to good use. When COVID-19 induced restrictions will be reversed, it is very likely that business confidence will return quickly.

Some enterprises can plan for a swift return to pre-crisis profits and growth along their trodden paths. Others, however, will have to face some changes first before they get back to a new normal.

Digitized processes, more remote working, machine learning and use of artificial intelligence require numerous changes in organization, processes and systems. Many different aspects and consecutive changes need to be considered, planned and executed.

McKinsey’s Kevin Sneader and Shubham Singhal expect returning consumer confidence bringing increased growth rates in 2021 — “revenge shopping” had been experienced in previous economic downturns. They also expect leisure travel to bounce back, and while business travel may lag behind, collaboration tools and video conferencing let people accept remote working much more than before COVID-19. They expect up to 20% of the global workforce to work mostly from home.

For some enterprises the imminent changes have a strategic with impact on products and services offered as well as their internal organizations, processes and systems.

Not all companies might be up to this. Based on evidence from previous downturns, OECD´s outlook suggests increased insolvencies to come in 2021-22 before economies will recover. Below graph shows the development of bankruptcy filings in the US and unemployment in Europe after the last two major economic downturns.

An IMF´s regional economic outlook for Europe forecasts a 7 percent decline in GDP for 2020 and projects a recovery by 4.7 percent in 21 which will however still end up lower than before showing the enormous impact the pandemic has. The IMF also describes substantial transformations boosting growth and productivity.

Conclusion

Change and restructuring activities also embrace opportunities. Top-performing companies and entrepreneurs will attempt to grow through M&A and portfolio restructuring. Some companies will look for strategic partners to master the change into digital processing. Private Equity and Venture Capital investors will look out for target investments. After 2020 with low M&A activity, it seems very likely there is enough “dry powder” waiting to be invested.

To facilitate the arranging, structuring and closing of restructuring and M&A transactions, we recommend the Capcade platform and workflow.

Capcade provides easy-to-use digital infrastructure to orchestrate transactions in an efficient way.

In a secure infrastructure, principals or their advisors can organize a workflow inviting colleagues from their own organizations and counterparties or 3rd parties to discuss and align intended financial transactions.

The platform involves a suite of functions including:

  • a Transaction-Wizard to upload basic details such as a term sheet and an Offering Memorandum
  • an interactive Data Room
  • a private or public Marketplace with targeted or public invitations
  • a Negotiator to compare offers and align the final offer with a chosen counterparty

Other upcoming features include:

  • a Document Builder to produce first-draft transaction documentation
  • e-Signing and Closing
  • Post-Closing Administration and Compliance

Transaction Lifecycle Orchestration — manage loans, M&A, and real estate deals from origination to compliance, closing and portfolio management