Covid-19 Pandemic impact on Due Diligence in M&A
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Covid-19 has been very disruptive for many companies interms of operational activities and survivability. This topic will seek to address how the pandemic is affecting the acquisition of target companies during M&A.
The coronavirus pandemic has impacted and will continue to have a material global impact on mergers and acquisitions. On a massive scale and in a very short period of time, hundreds of thousands of businesses have cut back their operations significantly, millions of employees have been laid off or furloughed, consumer spending has been drastically reduced, supply chains have been disrupted, and demand for oil and other energy sources has plummeted.
I believe that COVID 19 has to be considered in conjunction with other factors such as the war in Ukraine. The analysis should considered how these factors are affecting the capability of a company to fund the acquisition of a target. Many companies were surviving the effects of COVID 19 during 2020 and 2021 when an additional factor entered the game: the Ukraine war, which resulted in an significant increase in costs (energy, transport, interests, etc). Consequently the evaluation has to considered all of the together in order to know if it still feasible to acquire the target.
Yes, for example the Virtual Due Diligence: With travel and physical meetings heavily restricted during the pandemic, DD has shifted to a more virtual format. Meetings, site visits, and data collection are often conducted remotely through videoconferencing, virtual data rooms, and collaborative online platforms.
As others have said, the Covid pandemic adds an additional set of factors to DD that may not have otherwise been present. From a HR DD perspective, you must consider the cultural shift that has occurred during/post-Covid. We have seen a change in workplace culture driven though a focus on better work life balance and flexibility, and remote and hybrid working policies. These add another layer of complexity to DD, especially when assessing the cultural alignment of buyer and target. I can envisage a situation where employees at a target (who may enjoy the benefits of these sort of policies) would be less than appreciative if acquired by a firm who do not operate in such a way. Identification of these differences is more crucial now than ever, especially in relation to talent retention during an acquisition, as more and more data suggests these benefits are key criteria for many employees in a post-Covid world. There are a multitude of similar examples, but I believe the key point is that Covid has changed the way that people live their lives, and this must be accordingly reflected in the DD process.
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