How has the pandemic impacted M&A?
Merger and acquisition (M&A) activity, understandably, has stalled as COVID-19 remains an unrelenting problem in the U.S. Prior to the pandemic, M&A activity was at an all-time high, so there is hope that we can rebound to a healthy level once a viable vaccine is available and deployed on a nationwide scale.
That said, a second wave of the virus emerging in Europe threatens to further destabilize the economy and M&A activity. Currently, there is no clear timeline on a return to normal in the U.S., and thus M&A activity is likely to remain subdued for the foreseeable future. Buyers and sellers will continue to grapple with the lack of earnings visibility, leading both parties to shy away from the deal table or resist alternative structuring solutions.
Have all sectors been equally impacted?
Certain sectors are seeing pockets of deal making. The technology and healthcare industries continue to execute deals, as many companies in these sectors have benefited from demand shifts and have opportunistically sought out M&A transactions.
Though add-on acquisitions have been an increasingly important part of private equity (PE) sponsored M&A for the last decade, the COVID-19 pandemic has propelled their use to new heights. PE add-on deals accounted for just over 70% of all buyouts in the first half of 2020. Add-ons allow a PE firm to pursue a buy-and-build strategy for a company in which it has invested, which can help bolster an established company’s scale and increase its earnings.
Does the upcoming election have implications for M&A, short-term or long-term?
As with all major elections, there is the potential for dynamic changes in policy. We see increased regulation for strategic acquirers, such as antitrust review for large transactions, as a real possibility in this election. Additionally, the election could have a material impact on corporate tax policy. In the short-term, the ongoing economic uncertainty from the pandemic coupled with the upcoming election could result in continued softness in the M&A environment as owners take a “wait and see” approach.
That said, foreign trade policy negotiations coupled with disruptions from the pandemic have some companies looking at reshoring all or part of their supply chains. Some industry segments will be impacted more severely than others based on a host of considerations (e.g., labor cost and need, location of raw materials and inputs, proximity to end markets or the next step in the supply chain, tax or tariff policy, etc.). If the trends continue longer-term, reshoring and reevaluation of supply chains could help stimulate the M&A landscape, as there should still be a mix of buy-and-build activity, depending on existing industry infrastructure.
About BOK Financial Capital Corporation
BOK Financial Capital Corporation, a subsidiary of BOK Financial Corporation, is a collaborative financial partner that strives to help business owners navigate complex strategic decisions. We make direct equity and mezzanine investments in privately-owned, middle-market companies across a wide variety of industries in the Midwest and Southwest U.S.
Our partnerships are generally with founders and owner-operators of businesses seeking to meet a variety of objectives, such as succession planning, identifying and executing acquisitions, and developing organic growth strategies. Since inception in 2007, the team has made 21 platform investments and closed more than 30 follow-on investments to fund acquisitions and other growth initiatives, provided owner liquidity, and executed share repurchases. The team seeks to structure investments in a way that preserves a company’s operational flexibility and motivates all stakeholders to contribute to the success of the business.
About Chris Graber
As managing director of BOK Financial Capital Corporation, Chris Graber oversees all equity and junior debt investments in private, middle-market companies, and in many instances, maintains a board role in those companies on behalf of the organization.
Graber has more than 20 years of experience working with companies in a variety of industries to identify and execute strategic objectives, including majority and minority equity investments, M&A advisory, and growth implementation. Graber holds an MBA from the Mason School of Business at The College of William & Mary and a bachelor’s degree in International Relations and Russian from Baylor University.