M&A sale process design in the post-COVID era

With the festive season squarely in the rear-view mirror, it now seems an opportune time for Nash Advisory to undertake some “crystal ball gazing” to see what 2023 might hold in store for financial markets, and what this might mean for the world of M&A. 

A paradigm shift is currently taking place across the financial world

While nobody knows exactly what the future holds, it is hard to ignore the palpable sense of trepidation currently being felt across the financial community as market participants assess the potential implications of what may well be a financial paradigm shift taking place. 

It is entirely possible that, over the course of 2023, the economic environment will continue its transition from one marked by low inflation, easy money and “fear of missing out” (“pre-COVID era”), to one characterised by elevated inflation levels, tightening monetary supply and rising levels of risk aversion (“post-COVID era”).  In a recent memo, Oaktree’s Howard Marks summarised how this “sea change’ in the investment world currently taking place looked to him: 

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The changes taking place in the financial world are having a marked impact on M&A and investor sentiment; buyers have become less eager and more hesitant, while sellers are now feeling less complacent and more uncertain. 

This has implications on M&A sale process design considerations going forward  

In our view, this change in buyer and seller sentiment needs to be reflected in the advice provided by M&A advisors to vendors in relation to appropriate sale process design.  

No longer is a running a “plain vanilla” sale process involving inviting the broadest universe of parties to participate in an auction necessarily the most appropriate course of action.  A broad auction process, while more likely to ensure price is maximised during times of buyer eagerness, can conversely dissuade potential parties from participating during times of buyer hesitancy given the prolonged process timeline and reduced perceived transaction certainty.  

In the post-COVID era, a more appropriate option for some vendors may well be designing and running a bespoke sale process around tactical engagement with a small number of the most logical potential buyers.  Moreover, performing an independent assessment of fundamental value will be of greater criticality when running a bespoke process given the reduced ability for the auction clearing price to reliably inform vendor views on value. 

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Designing and successfully running a bespoke sale process on behalf of vendors entails a greater degree of difficulty for M&A advisers 

Given the greater degree of difficulty involved in designing and successfully running a bespoke sale process relative to a “plain vanilla” auction process, the need for vendors to engage with a M&A advisor with requisite experience and expertise will only increase in the post-COVID era.