The coronavirus pandemic has brought our everyday routines to a grinding halt, including those in the business and dealmaking community. As the markets continue to veer up and down based on the news at that particular moment, Smart Business Dealmakers wanted to get a sense of how those typically on the frontlines of deal activity are reacting to what’s happening. We spoke with Andrew Dickow, managing director at Greenwich Capital Group, to get his perspective on what’s happening.
What is your immediate reaction to the coronavirus pandemic from a dealmaking perspective?
The immediate impact we are seeing is the need to assess each of our deals at various stages to determine how they will be impacted. Companies across the globe are calling strategy meetings to discuss the broad implications of this crisis and how they are going to push through it in the weeks to come.
What is paramount for us is the health of our clients and everyone we work with. Some industries such as traditional retailers are being impacted significantly harder than others. Others, such as certain segments of the construction services industry, are less impacted.
For deals that are near to a closing, it comes down to having an open and honest conversation between the buyer and the seller — and in some cases the lenders. There is still a lot of uncertainty and so many unknowns. It would be disingenuous to make any specific proclamations about when the macroeconomic environment will return to “normal.”
In most cases, if both sides are aligned that this is going to be a short-term event vs. long-term, it warrants a path forward and continued discussions. The most common thing we are seeing is a general pause to discuss the issue in relation to our expected deal timeline. We have yet to see any of our deals get cancelled permanently. Things are changing by the day, and we are hopeful that we will be able to work through this.
Besides the importance of the health of everyone involved in our deals, we will always assess timing and the environment to ensure we are able to achieve the objectives of our clients. If we ever feel that what is happening during this crisis will negatively impact that, we will work with all parties to determine the appropriate path forward on a deal-by-deal basis.
What is the impact of travel restrictions? Is it lessened by technology?
The impact of travel restrictions has been meaningful. It is limiting the ability of traditional management presentations, site visits, networking events and other general meetings. Our company is mostly working from home, which is a luxury we have as a service-oriented business, but it adds complexity to our day-to-day routines.
Technology has played a huge role for us. Between our messaging systems and videoconferencing capabilities, we are able to stay in constant contact with clients, colleagues and others.
On a more personal front, I am a social creature and it is challenging not being able to see my colleagues and others that I work with on a daily basis. It has been a reminder to me to cherish all the relationships in my life and to work to communicate even more as a leader during these challenging times.
How does dealmaking typically respond when the economy takes such a brutal hit?
This is clearly an unprecedented scenario, but throughout the course of history, particularly in the U.S., we have shown our resiliency in rebounding after a crisis. Although this is a health crisis that is pushing us into a financial crisis, there will always be a place for M&A.
In the short term, companies will be focused on stabilizing operations, shoring up their balance sheets and getting back to normalcy. In some cases, that will lead to larger companies divesting noncore assets to free up cash and focus on their core competencies, while companies that went into the crisis with little to no debt and strong balance sheets take advantage of potentially discounted valuations and consolidation opportunities.
Over time, there will continue to be deals in specific industries and niches that were impacted in different ways.
Can dealmaking eventually be a path to economic recovery, at least to some degree?
I don’t think dealmaking will be the path to economic recovery, but it will certainly play a role in it. In the middle market specifically, you will have entrepreneurs that were looking to exit so they could transition into retirement, which doesn’t completely get upended by a crisis if there is no alternative succession plan.
Deals will still get done. You will also see those with a lot of dry powder that have been on the sidelines dive into the market looking for opportunities. These opportunities could be in the form of giving struggling companies working capital to get them back to full strength to enable them to capitalize on new opportunities where their competitors may not have been as resilient. Generally, there is consolidation in certain industries coming out of a recession, which brings stability into certain markets. Over time, this also opens the door to new entrants coming in to try to take market share from the larger players that stabilized the market initially.