Mergers and acquisitions anti-crisis management

Sep, 15 2020

Currently, businesses in all countries of the world are struggling to overcome local and global economic crises and challenges. One of the effective tools оn this way could become mergers and acquisitions to consolidate resources and efforts, and anti-crisis management. Today, risk managers are confronted with: 

  • Dealing with the unknown, new challenges; 
  • Dealing with unstable economic situation on the international stage;
  • New actors with different agenda and approaches: the private sector, NGOs/CSOs; 
  • Constant scrutiny from the media and citizens through social media; 
  • Higher demands from and expectations of the citizens. 

Anti-crisis management and its elements 

Anti-crisis management is construed as identification of threats to an organization and its stakeholders, and the methods used by the organization to deal with these threats. Global events are unpredictable, for this reason companies must be rather flexible to adapt to changes in the way they conduct business.

To build an effective anti-crisis management model in a company, it is essential to collect the following elements:

  1. Clearly identify team roles and responsibilities;
  2. Assess strong and weak sides of a team;
  3. Activate effective Incident Action Planning (IAP) skills;
  4. Effective crisis management team communication.

Steps to create a crisis management plan

  1. Assess your risks to determine potential crises that could destroy your business and/or processes; 
  2. Determine the business impact; 
  3. Identify contingencies;
  4. Build the anti-crisis plan; 
  5. Familiarize all owners; 
  6. Revisit the plan frequently.

Anti-crisis strategic management is aimed at detecting the signs of a crisis and to create the necessary prerequisites for their timely prevention, weakening, and overcoming in order to guarantee the continuance of the corporation’s activity, and the prevention of adverse implications. Anti-crisis managers must have clear system vision, and they must be able to analyze a number of the interconnected problems that could lead the corporation to bankruptcy or to a worsening of the position of its staff. 

Challenges on the way to anti-crisis management

Strategic management can be presented in the following way. 

The first group includes the problems of prediction before a crisis occurs. 

The second group of problems is connected to key aspects of the activity of the organization. 

The third group includes time limitations, staff qualifications, the methodology and organization of solutions, the shortage of information, and the problems of developing innovative strategies that may help to overcome the crisis (Weiner, 2006). 

The fourth group includes conflict-resolution and selection of staff in crisis situations.

Principles of anti-crisis management

  1. Early diagnosis of the crisis in the financial activity of the company; 
  2. Speed of reaction to early crisis evidence;
  3. Feasibility of reactions to real threats to financial state of the company. 

The main directions of anti-crisis management at the corporate level are:

  1. Permanent monitoring of social-economic conditions;
  2. Development of new management techniques;
  3. Financial and marketing strategies;
  4. Reduction of costs;
  5. Incentive programs to boost staff motivation. 

Anti-crisis management in mergers and acquisitions deals

It is well-known that a current economic crisis is caused by the coronavirus pandemic. There is no doubt that mergers and acquisitions also fell a victim of this global disaster. 

According to the latest survey, more than half of respondents (51%) indicated a “temporary pause” of current deal activity to have some time to assess the potential market recovery timeline or to delay anticipated deals still at an early deal phase such as letter of intent or in preliminary due diligence. A further 14% of respondents indicated they were at immediate deal-stop on all current deals. However, late-stage deals are still getting done: approximately 12% of respondents said they were expediting late-stage deals to a quick transaction closing, and another 12% of respondents said they fully intend to proceed to deal closing pursuant to successful renegotiation of valuation or terms. The remaining 11% of respondents simply indicated “unknown or not applicable.”

Following the global forecast on the deal volume throughout the remainder of 2020, it comes as no surprise that 26% of respondents acknowledge their anticipated future deal volume for Q2-4 2020 is expected to be substantially reduced. On the other hand, a majority of acquirers (51%) anticipate remaining on temporary pause until the timing and nature of economic recovery is evident through late 2020.

Mergers and acquisitions challenges

Currently, businesses are working to bridge the valuation gap and to apply anti-crisis management tools to save mergers and acquisitions. Sellers, especially those representing the most promising pandemic and recovery era plays will be greatly in demand and will likely have multiple potential suitors. Valuation, deal structure, the right growth incentives, and talent retention will need to be creative, compelling, and simple enough to win the bid. For those businesses more severely impacted by the coronavirus pandemic and economic slowdown, sellers will, by and large, wait until a new valuation consensus emerges or until profit and loss statements recover over time. This calls for a level of due diligence analysis and dialogue with the seller. 

Finally, the survey respondents reported that they are reinforcing internal mergers and acquisitions procedures and anti-crisis management. Whether achieving that type of post-Covid strategic repositioning requires a company to do one deal or 20, it is reasonable to strategically use the temporary pause to speed up completion of prior deal integration backlog.

Modernize mergers and acquisitions operating processes, anti-crisis management programs, software solutions, skills and resources to enable smooth remote operations for any deal, in any market environment and at a level of deal volume that will adequately support your crisis recovery strategic objectives.

Mergers and acquisitions are difficult in any environment, in particular, during a post-Covid period. 

Although a seller would typically avoid giving forward looking warranties, e.g. as to the financial projections for the target business, other typically encountered warranties may be at risk of being breached as a result of the effects of the pandemic crisis. Examples might involve warranties which cover changes to the business since the date of the last accounts or warranties which mention known or threatened breaches of material contracts either by the target or by key counterparties. 

Sellers will have to seek to amend or delete problematic warranties or to carve out from their scope the expected effects of the COVID-19 crisis on the business. Some sellers may consider giving some limited warranties on the assumed financial and other effects of the crisis on the target business (suitably caveated as to assumptions and the basis of preparation of any such information) and framed on a “so far as the Seller is aware” basis. Alternatively, warranties which cover the target’s compliance with an identified emergency action or contingency plan may be appropriate. In that case, ideally, sellers would wish to state also that such warranties are boxed – in other words these are the only warranties given about the known or anticipated effects of the COVID-19 crisis and none of the other warranties extend to such matters expressly or by implication.

During difficult times, companies, private equity firms and other potential acquirers must weigh adjustments to investment strategies. Companies that can leverage capital and make deals early in a downturn could see better returns than others in their industry. But for that growth to be realized, those companies have to be prepared. It is important to review mergers and acquisitions best practices and how they have changed over this past economic cycle.

When focusing on these best practices, issues to address include deal strategy and leadership, capital, customer experience, operations and workforce. Actions and tools include scenario planning, cost optimization, data analytics, reskilling and automation. 

In these critical areas, companies need to consider three key things:

  • What we know about implications of the past economic crises and recessions;
  • What’s different: characteristics of the current cycle and differences from past cycles;
  • Looking forward: current best practices for being prepared to do deals in times of economic uncertainty.

The COVID-19 crisis will require thoughtful and consistent responses by competition authorities with regard to merger control. Although it does not seem appropriate to depart from the traditional guiding principles, the actual implementation will need to factor in the impact of the crisis on the economy and increased uncertainty about future market developments. This note has raised a number of potential issues for competition authorities to consider. It is far too early to draw any firm conclusions on the best way to approach the forthcoming challenges. Nevertheless, some initial indications may be proposed. 

In particular: 

• Competition authorities should not smoothen the standards for merger assessment and continue to prevent structural changes that would lead to long-term harm; at the same time, they need to monitor market conditions closely, including in co-operation with other entities or regulators, to ensure accurate merger scrutiny in the face of higher uncertainty resulting from the crisis;  

• When applicable and where governments are undertaking, promoting or considering public interest objectives in mergers, competition authorities should provide governments with general guidance on how to minimize anti-competitive risks resulting from the merger and advocate for a transparent identification of the public policy objectives pursued.

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