Updated: Aug 18, 2020
IQRA ALI | LEGAL JARGON WRITER
The start of July this year saw a rise in M&A following blockbuster deals that were recently finalised. The COVID-19 pandemic had forced companies to postpone (and even cancel) transactions, but we’re beginning to see them get back on the road. Clearly, large companies are preparing themselves for a recession by signing deals that would brighten their market value in the near future.
Amongst the eight blockbuster deals that have taken place since July is the $20bn sale of chipmaker Maxim Integrated Products to Analog Devices as well as Seven & i Holdings’ $21bn deal to buy Marathon Petroleum’s Speedway petrol stations business.
The crisis had brought M&A to a somewhat halt as businesses found acquisitions no longer attractive. An example of this is the $2.3bn deal between Cineworld and Cineplex that was due to complete in June. Cineworld had abandoned the acquisition because the market value of Cineplex meant that it was no longer an attractive chain.
Share prices seem to be recovering which has attracted more deals between parties. While the need for increased due diligence and security remains, it looks like businesses that have long-standing relationships with one another may well sign the deal that they had paused following the health crisis.
How might this impact the commercial world?
It is clear that there’s a domino effect when it comes to the commercial world. A potential risk in one transaction might deter other transactions pulling through. A surge in M&A therefore means more businesses and investors will be willing to trust each other. Although a need for increased security is a given, analysing how other deals were successfully signed might encourage more investors to operate in a similar way.
It also escalates the bidding culture. We saw that M&S and Next were amongst the companies bidding to acquire Victoria’s Secret earlier this year. While Next won the race, it sparks a move for companies to continue racing in the commercial world to get the best deals.
What might be the possible legal implications?
M&A is at the heart of the vast majority of commercial law firms. Big transactions are where firms generate a lot of money from. More deals pulling through increases M&A work for law firms to be getting on with. For example, investors will need increased security and so they will seek legal advice on how to best approach such a complex situation. There will be a further need for lawyers as they complete the intensive due diligence as part of these large deals.
M&A has always been huge in the commercial world. Following the pandemic, it will only get bigger.
Iqra is an aspiring commercial lawyer and will have completed her LPC by the end of August 2020.
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