Paul Klug, a shareholder at Polsinelli, an Am Law 100 firm with 900 attorneys in 21 offices nationwide, says when it comes to valuations, the jury may still be out, especially in industries that tend to be more of a lagging effect than a leading effect.
“But where we see maybe some stabilization and some narrowing of looking at numbers and taking a really hard look as to what might happen going forward with the pandemic and how that might affect things, I can't say that we've seen a drastic decrease,” Klug says. “In looking at pricing and, quite frankly, everything we hear, multiples have sort of remained steady. And they certainly haven’t increased, but I don't think they've decreased substantially either.”
He says part of the reason they’ve stayed essentially steady is that there are a lot of buyers out in the market. Also, demand might be pushing prices to remain stable and the companies that are in play, a lot of them are probably in industries that had maybe have not been affected significantly by the pandemic and so their numbers, while maybe a little soft going into the end of 2020, aren't as bad as some might have predicted.
When it comes to contracts, Klug says he saw a lot of force majeure issues and claims, parties wanting to renegotiate terms based on availability of resources and how that all folded into potential force majeure claims. He says his firm developed some strategies for clients along those lines for their contracts going forward, but heading into the last quarter of 2020 and going forward, he doesn’t expect to see a whole lot of upheaval in that area.
The common sense approach that he’s seen in M&A negotiations were a product of companies essentially just trying to get through a deal. They were presented with the choice: either work a deal out, or allow issues to snowball into big claims. That meant litigating in an uncertain environment, with even more uncertainty around where that could end up. That’s because some of the force majeure issues were not really clear — contract language was not clear, state law wasn't necessarily clear, because this was something new
“And so I think a lot of our clients, we tried to get them to look at things practically as well as legally and to say to them, ‘I'm not sure where a lawsuit is going to get you,’” Klug says. “’You can invest a lot of time, money and effort into that or you can sit down and look at terms and conditions and see if you can work things out.’”
While not everything could be worked out, it was an approach that made sense early on and seemed to smooth out many of the rough patches.
Klug spoke on the Smart Business Dealmakers Podcast about a range of issues, including the view of 2020’s uneven M&A landscape from his seat, and how his clients mitigated deal risk.
Listen to the podcast
