Dealmaking has been slowed by the COVID-19 pandemic, but activity hasn’t stopped, says Joe Wagner, managing director and partner at Plante Moran Corporate Finance.
“We have a number of deals right now that are moving forward where the diligence is being done with the virtual conference call, including customer discussions that are scheduled right before closing,” Wagner says.
As the business community slowly emerges from the economic shutdown, many companies have gained a comfort level with conducting meetings through videoconferencing.
“I do think we’re going to see some of these things we’re doing today become the new normal in terms of deal execution,” Wagner says.
Wagner spoke with the Smart Business Dealmakers podcast about what he’s hearing from clients in the market and how private equity firms are responding to the pandemic. Below are excerpts from that conversation.
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How has your role evolved in terms of providing support to your clients?
We’ve shifted from being their investment banker to really being a holistic business adviser. We’ve given our perspective and we’re a voice, or at least a sounding board, for them to figure out how they really manage through this from a balance sheet perspective. I think the days of maximizing profit are, at least for the short term, in the rearview mirror.
It’s really become, how do you manage working capital? How do you make sure the liquidity of the business is sustained? How do you make sure the company continues to service its customers, whatever or whomever that may be? So it has really been focusing on cash management, accelerating receivable collection and extending payables to the extent you’re not negatively impacting a vendor relationship.
In what ways have you seen deal flow affected by the pandemic?
There are some deals across industries that have actually withstood this pretty well. I’d say companies that supply into the infrastructure markets, which still have a need to do business and are deemed essential and food and beverage, have been doing really well through this. Defense hasn’t seen much of an impact.
Where there are your laggards are automotive, aerospace and energy. Obviously, those are markets where you see a little more of a pullback in terms of transaction activity. So I think the industry definitely is a driver of what we’re seeing in terms of status of the deal flow. I will say, though, the deals that are going forward right now have a common characteristic. There’s a very strategic angle to the transaction, and they’re typically viewed through the lens of a long-term hope.
If you’re a private equity fund with a three- to five-year window, where you’re trying to generate your 20 to 30 percent annual equity [internal rate of return], it’s a tough time to transact right now because nobody really knows how long the return to normalcy will take. We have seen the traditional private equity buyer sit on the sidelines, or at least pull back slightly from the market in the last few weeks, and for obvious reasons.