June 8, 2020
The Long View: The Covid-19 Pandemic’s Influence on M&A
This Freshfields report takes an in-depth look at how the Covid-19 pandemic could influence M&A over the longer term. The report provides a thoughtful and wide-ranging analysis of a variety of topics relating to the future of M&A. For example, this excerpt discusses a potential boom in private credit investing post-pandemic:
We also expect a surge of interest in private credit investing among LPs and sponsors. Special situations and tactical opportunities funds are built for times of volatility, and made huge gains in the wake of the financial crisis thanks to their flexibility to invest across asset classes. No one did better than Apollo, which at the height of the credit crunch poured more than $1bn into debt from plastics manufacturer LyondellBassel. This was converted into equity when the company filed for bankruptcy and years later, after LyondellBassel was reborn through a successful listing, Apollo walked away with a $10bn profit. According to Bloomberg it remains the most successful private equity investment of all time.
Not all private credit plays flip into overall ownership in this way. But sponsors may not need traditional ‘control’ in order to succeed under current market conditions. The usual route by which sponsors exert influence over their investments (i.e. acquiring a majority of the share capital and installing their own directors) are less important in times of high financial stress. Against the backdrop of COVID-19, private investors who provide a financial lifeline for struggling businesses will carry a lot of influence in the boardroom – and could find themselves wielding as much power as they do when they own large chunks of shares.
Other matters addressed in the report include the consequences of the pandemic’s disparate impact on various sectors of the economy, its influence on activism, its contribution to the growth of economic nationalism, and its effects on deal terms & processes.
– John Jenkins