The M market was stalled for months due to the consequences of the Corona pandemic. For numerous German companies, the activity in the corporate finance world, and especially in the M market, which has stagnated since Q4/2020, is no longer acceptable. Against this background, many companies are slowly venturing back into deals, albeit with great caution.

The reason for the slow re-emergence of the M market is mainly due to the currently very uncertain Corona-related transactions. According to the results of the FINANCE M PANEL, almost one in two M experts believes that deals have become somewhat more uncertain compared to the beginning of 2020, and almost a third even consider them to be very uncertain. Only a quarter of those surveyed would not see any difference.

This deal stagnation is mainly characterized by the lack of certainty as to the extent to which the once attractive targets and financially strong buyers have been weakened by the Corona crisis. With regard to sourcing attractive targets or financially strong investors, both the buyer and seller sides want to allow themselves more time for a more extensive process. In the coming months, half of those surveyed would like to invest more time in deal sourcing compared to the previous year. On the other hand, around a third of those surveyed estimate the search effort for attractive targets to be just as high as a year ago. Only 12% of professionals expect that they will invest less time in deal sourcing in the future.

Furthermore, almost half of the companies surveyed expect that due diligence will also take more time in the next few months than was the case just over a year ago. The majority of the companies surveyed believe that they are well positioned in the auditing of companies and therefore do not want to invest more time and money.

After the successful company search and due diligence of the target, the M negotiation phase usually begins. The talks between buyers and sellers are currently proving to be quite difficult. This is because buyers factor possible crisis effects on the target company into the purchase price, while sellers view the effects of Corona as temporary and do not include them in the purchase price.

As a result, a third of buyers are trying to hedge themselves with purchase price adjustment mechanisms, such as earn-outs. Among them, around 15 percent of buyers are relying on specific MAC clauses (Material Adverse Change clause) in the current situation and around 12 percent of those surveyed are trying to retain components of the purchase price. In addition, around a third of the buyers surveyed are going into the due diligence of the target company with stricter requirements.

The sellers, in turn, are trying to negotiate the contractual terms in their favor. Almost a quarter of the sellers surveyed want to protect themselves against the current market uncertainties with locked-box mechanisms. Around a third are trying to agree on suspensive conditions only if they are mandatory. Around 8 percent of the sellers surveyed see escrow accounts as an advantage instead of retaining purchase prices.

Do you have any questions or need support on various M topics?

You can reach us by phone at 02150 7058 210, by email at mergers@starkpartners.de or on the web at www.starkpartners.de

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