/ M&A activity is expected to hit full throttle by the end of 2020

/ The key drivers behind the expected increase in M&A activity are:

1. Private Equity
2. Accelerated de-risking of investments
3. Industry consolidation
4. Company restructures and optimisation
5. Acceptance and increased use of disruptive technology
6. Favourable valuation for distressed companies

We are experiencing a period of turbulence and the global economy is emerging from a state of paralysis as
a result of the novel Coronavirus pandemic and the lockdown measures that were enforced by governments
around the world to curb the spread of the disease.

The current crisis is temporary, and it affects all industries, general consensus is that M&A activity will be
vigorously revived in what can be described as “post lockdown euphoria”. Advisors will normalise company
financial results in valuations, isolating the effect of the temporary disruption, which will facilitate transactions
at reasonable prices.

An accelerated wave of concentration is expected in most industries. The first M&A transactions in a specific
sector are usually made at higher multiples. Prices fall as concentration proceeds, as do the profits of those
companies left out of the process. Because the appetite for buying will already be satiated at that stage, there
will be fewer buyers, as the size will no longer be a necessity for them.

It is critical for business owners to move quickly and take advantage of higher valuations during the first wave
of accelerated concentration in the industry that they operate in.

Mergers, acquisitions and disposals are expected to hit full throttle towards the end of this year. The 6
engines that will be the driving force behind the anticipated M&A activity are described in further detail below:

1. Private Equity

Private capital fundraising globally had a rocket year in 2019 with $888 billion raised; the most ever raised on
an annual basis. Private Equity funds have an urgency to invest this money as they will not be able to raise
new capital until these funds are deployed. There will be a unique opportunity for those business owners who
appreciate the benefit of partnering with Private Equity funds and leading an industry consolidation.

2. Accelerated “de-risking” of investments

This unexpected crisis has forced many business owners to come to the realisation that it may be a wise
decision to sell down some or all of their shareholding in their businesses. Entrepreneurs tend to put the
cash generated by their business back into its operations to fund growth. As all the cash is tied up in their
business, entrepreneurs have all their “eggs in one basket”. The risk of lack of diversification may have
become intolerable for many entrepreneurs, especially those nearing retirement age.

3. Industry consolidation

Large established companies with strong balance sheets and cash reserves will be able to weather the current
storm and emerge from the crisis leaner and more focused as a result. These companies will be in a position
to acquire their weaker competitors and increase their market-share. Many mid-sized companies lack the
economies of scale of large businesses and lack the flexibility of their smaller peers making them attractive
targets for their competitors.

4. Company restructures and optimisation

Companies are reviewing their internal organisation structures and will start divesting non-core units.
Companies are actively making cost adjustments and optimising their capacities, learning to work more flexibly
and efficiently, which will increase their attractiveness for potential buyers.
Should you need further clarity or assistance with implementing any of the above, do not hesitate to
contact any of our Partners.

5. Acceptance and increased use of disruptive technology

Online education, e-commerce, virtual communication and telemedicine services have become more widely
used given their need during the pandemic, also making them attractive targets for acquisitions.

6. Favourable valuations for distressed companies

Many companies that operate in industries hardest hit by the current pandemic won’t have access to adequate
funding to continue trading when demand for goods and services provided by these companies return to
normal. Buying opportunities will arise in distressed industries such as retail, hospitality, leisure and tourism.