M&A delays amid Covid-19: sources talk virus impacts; Repricing, hung deals loom in secondaries; Riverside invests in National Flavors

Covid-19 hits the M&A market and Riverside backs National Flavors.


We’ve been canvassing sources in the various segments of the market about the impacts of the global pandemic and consequent economic slowdown on their businesses.

The biggest hit so far seems to be on deal activity, which is falling off for various reasons: it’s harder for dealmakers to travel; firms have been focusing on securing portfolio companies against the slowdown; and financing has become more expensive.

“In speaking to bankers [over the] last few days, they are all delaying their process launches, rightfully,” a senior member of a large buyout fund told Sarah Pringle and Milana Vinn at PE Hub. “No one wants to launch during this thing – no one can actually go meet with management teams!”

The intensity of the impact is industry specific, an investment banker said. Processes touching areas like entertainment, travel, hospitality and energy “are stopped indefinitely,” the banker said. Healthcare companies, on the other hand, haven’t seen a major impact, a separate banker said.

Read more here on PE Hub.

MAC is back?

Sources have also brought up the specter of provisions allowing buyers to walk away from signed deals in the event of material adverse changes to target companies, known as MAC clauses. These were a big deal in the global financial crisis, but have been less of a focus in recent years.

Morrison & Foerster said during a webinar Thursday that clients had sought assistance in understanding whether MAC clauses had been triggered by the virus, according to a story by Alex Lynn on Private Equity International.

“[They’re asking] either because they’re considering invoking it themselves or they’re concerned that the counterparty will,” said Tim Blakely, a Hong Kong-based managing partner at the law firm.

Also, Brookfield Asset Management indefinitely delayed plans to sell its Dalrymple Bay Coal Terminalin Queensland as a result of travel restrictions and market volatility caused by coronavirus, writes Daniel Kemp on Infrastructure Investor. Read it here.

And … Blackstone Group is asking its portfolio companies to draw down credit lines to avoid liquidity crises, according to Bloomberg. The firm is focusing on companies in sectors impacted by the spread of coronavirus, like hospitality and energy, which is getting hit by drops in oil prices.

What are you seeing out there in the M&A world? How is the pandemic impacting deals? Hit me up with your thoughts at cwitkowsky@buyoutsinsider.com. Also, make use of our anonymous tip box on PE Hub or Buyouts.

Top Scoops
While the pandemic roils primary markets, the disruption also is rippling into the secondary market. The outbreak, which has hammered the broader U.S. economy for several weeks as business activity slows, is causing sellers to delay bringing secondary deals to market. It’s also compelling buyers to seek repricing on active deal processes, and it’s possible that new deals could get pulled as sellers decide to wait for a better pricing environment.

“Any smart investor is starting to think about what the ramifications of this market will be in our portfolios and those we’re looking at,” a secondary buyer told me. Check it out here on Buyouts.

How about an actual deal? Riverside Co invested in Michigan-based National Flavors LLC, which makes flavors for beverages, frozen desserts, baked goods, confections and processed fruits. Riverside will seek to build up the company’s R&D through organic and inorganic growth, pursuing add-ons of other flavor companies. Read it here.

Good luck to ya, stay strong. Reach me with your thoughts, tips, gossip, whatever at cwitkowsky@buyoutsinsider.com, on Twitter or find me on LinkedIn.