Crawford’s Chief Strategy Officer, Greta Van takes a look at the global impact of COVID-19 and how it could impact Mergers and Acquisitions.
The global impact of COVID-19, or Coronavirus, is one that no business can ignore. Roughly 90,000 cases and 3,000 deaths have been reported to date, and those numbers are climbing. From business interruption to travel restrictions, the effects are complex and costly. For those in the insurance industry, there is increased pressure to answer inquiries about policies, potential risks to clients, and how to protect employees. The outbreak is a global issue and touches all aspects of the business, including mergers and acquisitions (M&A).
What was the state of M&A before COVID-19?
Before the outbreak, the M&A world saw a wave of super-sized mergers in the U.S., each worth more than $10 billion, driving corporate deal-making to its fourth-strongest year on record. For the insurance industry, in particular, mergers increased in the third quarter by 51.2%, according to Property Casualty 360, and in the U.S. alone, there were 625 M&A transactions.
How will COVID-19 affect the M&A sector?
The costs of keeping the virus in check are mounting and are liable to surpass all previous outbreaks. With entire cities under quarantine and companies scaling back operations or completely shutting down, M&A and Joint Venture (JV) transactions across the world are undoubtedly at risk as we navigate these uncertain times.
The coronavirus outbreak can be expected to slow M&A in the insurance industry as companies will weigh the benefits of moving forward until the contagion is under control. We should not, however, deter due diligence and strategic considerations when eyeing target companies. During a recent interview with CNBC, Warren Buffet noted that a very significant percentage of businesses were being impacted by the Coronavirus, adding, “…the real question is where those businesses are going to be in five to 10 years.”
What can we expect in the future?
Looking ahead, we may be dealing with the effects of the COVID-19 for years to come. This pandemic has caused many companies to reevaluate their current M&A deals, and investors can expect uncertainty, particularly when dealing with global companies. Those currently involved in transactions could see the Coronavirus effects triggering a material adverse change (MAC) clause. The outbreak may also constitute a “force majeure” with the event being beyond the control of both parties. There could be delays to closings, delays to due diligence, breach of warranties, or any number of termination events. We must consider timing carefully when moving forward with so many uncertainties at play, especially in an already unstable market. With no available vaccine on the market, investors should note that things may get much worse before they get better.