With the COVID-19 pandemic, deal activity is being hit by downward pricing and transactions getting put on hold. In fact, founding member John Lewis is surprised that Metz Lewis Brodman Must O’Keefe LLC has three active deals at the moment.
In two other scenarios, the buyer, which the law firm was representing, went back and repriced the deal downwards.
“(They) basically said to the seller, ‘We’ll still close this transaction, but at a much lower price,” Lewis says. “And the sellers in both of those cases just decided to stop the transaction.”
Lewis spoke with the Smart Business Dealmakers podcast about what Metz Lewis is hearing and doing to help its clients through this unprecedented time. Here are excerpts from that conversation.
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What are you hearing from your clients?
We’re hearing a lot of different things. I think it depends upon the industry. An example would be we have a peanut butter manufacturing client which is swamped with orders right now and is running extra shifts — and, of course, is trying as best as possible to keep their employees safe in this environment.
On the other end of the spectrum, we’ve got clients that are, for example, in the automotive supply chain who are going to be shut down for months because the auto industry is entirely shut down.
In a different setting, we have a client with a revenue stream which is dependent upon the event industry, and that client is entirely crippled because of no events occurring and no events being planned any time in the near future.
How has the M&A pipeline changed?
In the beginning of March, before this really hit us hard, hit our economy hard, our M&A team had eight or nine transactions in the pipeline that probably would have been closing this month or into next month. I think now we’re down to three transactions that are active. The others have definitely been put on hold because of buyer decisions to basically take a pause and try to access how the target is going to perform and how this crisis is going to affect the target’s financial performance or their business longevity overall.
What new procedures do you think will be developed because of this?
I think that there will be a lot more caution on the part of employers, in terms of making longer-term commitments, whether that is with leases, whether it’s with employment situations. I’m pretty sure in the employment setting, you will also see employers going more toward a productivity based compensation model, as opposed to just a traditional salary model, so that they have the flexibility if things like this happen in the future.